A Guy Named “Cliff” and a Guy Named Ben
There are two guys taking center stage in the market right now. The first guy’s name is “Cliff,” and the second guy’s name is Ben.
Well, “Cliff” isn’t really a guy. Rather, “Cliff” is short for the “Fiscal Cliff.” As long as this issue remains unresolved, Wall Street will continue its tentative and nervous trading patterns. For more than a week, stocks have edged higher, as traders figure that the path of least resistance for stocks is to the bull side.
The chart here of the S&P 500 Index shows that broad measure of the domestic stock market now has surged back above its short-term, 50-day moving average.
This technically positive development is good for bulls. But I suspect that given the uncertainty about the fiscal cliff and the uncertainty of how tax policy will change, as well as how that situation will affect the entire global economy, we are likely to see a quick sell-off that would put stocks back down below the 1,400 level.
Now, the other guy affecting the markets today (and for the past four years) is Federal Reserve Chairman Ben Bernanke.
The Fed chairman announced that the U.S. central bank would keep its foot on the monetary throttle by committing to another series of monthly purchases of $45 billion in Treasuries. That’s on top of the $40 billion per month in mortgage-backed bonds the central bank started buying in September.
The new bond buying scheme was widely anticipated by analysts; however, the one surprise from the central bank’s Federal Open Market Committee (FOMC) policy meeting featured the new numerical thresholds for how long the Fed would keep interest rates at the current low levels. The Fed announced it likely will keep official rates near zero for as long as unemployment remains above 6.5%. The Fed also indicated that inflation remains low, and that long-term inflationary expectations remain contained.
Here’s the key quote from the FOMC statement:
“The Committee remains concerned that, without sufficient policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions.”
Translation — the Fed still thinks the economy and the job market are weak. Who could disagree?
Interestingly, while the domestic equity markets slowly trend higher, the gains in other global markets have been anything but slow. Stocks in Japan recently have begun to trade higher. And stocks in China have been outstanding performers of late.
The chart here of the iShares FTSE China 25 Index Fund (FXI) clearly shows the big move in the 25 largest stocks traded on the Shanghai Exchange. This trend has been evident since September. In addition, that trend is one reason why we own FXI in our Successful Investing advisory service.
I suspect there will be more upside in China in 2013, and FXI is just one of many ways we are taking advantage of this secular bull market. If you’d like to find out how to jump on the latest buying wave in China, then check out Successful Investing today.
Jim Woods is a 30-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor.
His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. Read more about Jim Woods.
