The Relief Rally Is On – All Eyes on the Fed

It was not a gloomy Friday the 13th at the markets late last week, with the Dow Jones Industrial Average posting its best weekly gains (up 3.04% on the week) since January. The Index gained 0.49%, the S&P 500 rose 0.27%, while the NASDAQ Composite joined the chorus by advancing 0.17%.

Let’s recap the positive news that made the markets sing so sweetly on Friday. The Chinese economy seems to have stabilized at long last and its industrial production and retail sales are not in a spiraling free fall any longer. Russia too has played its part in boosting the markets. It seems to have stalled, at least temporarily, the US military intervention in Syria. The Assad government in its effort to halt another disastrous US-led Middle East crisis has agreed to open up its chemical weapons stockpile to the international community. Although President Obama states that he is still skeptical about the Syrian government’s promises, he has had to backtrack on his planned military intervention, primarily due to growing protest from the American public. After endless years of continuing war in Iraq and Afghanistan, the American people are balking from jumping into yet another interminable, bloody fray. While the future of international, political wrangling of course remains uncertain, the markets chose to remain optimistic and reacted positively to this news.

News of Twitter’s upcoming IPO also helped the markets. As did Larry Summers. Although Summers is now out of the running for Bernanke’s job, Janet Yellen, the current Vice-Chairwoman of the Federal Reserve, seems to be a popular contender.  We like her too, especially since she is more concerned with unemployment rather than with inflation – which seems to us to be a rather more logical stance.

The U.S. consumer is still not doing what it does the best – albeit, consuming. Retail sales figures were lower than expected and the Michigan Consumer Confidence came in at 76.8, more than 5 points below the expected 82.0. For the economy to get out of the doldrums, and for the chart below to spike higher and higher, the consumer needs to take advantage of the strengthening dollar and get into an upward consumerist spiral – and BUY.

Figure 1. Confidence is moving back to pre-slump levels, but still far from highs of usual post-recession growth periods.
Figure 1. Confidence is moving back to pre-slump levels, but still far from highs of usual post-recession growth periods.

 

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