This week I warned you about the air pocket and I told you to get long ahead of the FOMC minutes. Yesterday I advised you to buy into the rally and the S&P is up 20 points. If you made money using my forecast, please CLICK HERE and post a review on Investimonials. I spend hours putting my forecasts together and your comments make this worthwhile.
Yesterday’s massive rally demonstrated the strength of the bid. Asset Managers want to buy ahead of a year-end rally and closed-door meetings in Washington sparked optimism. The debt ceiling is the only thing standing between investors and a new all-time high.
To draw an analogy, this was a massive storm and it had the potential to produce tornadoes. That front has passed and now we are dealing with the wraparound.
I hope you followed my suggestion to get long yesterday. Those big gaps higher are tough to buy into, but the S&P 500 is 20 points higher.
A deal has not been reached and it looks like the debt ceiling will be extended temporarily. The GOP is taking a massive hit in the polls and any further destruction could cost them the House in 2014. We will see some haggling and Republicans will settle for minor concessions (tax holiday for repatriation, repeal of the medical device tax, minor entitlement reform and the Keystone pipeline). This will allow them to save face. Republicans will try to keep the government shutdown in place, but they will have to concede.
A “grand bargain” would be ideal, but that is not likely. All of the closed-door meetings yesterday simply got both sides talking. They are still miles apart and the deadline is approaching quickly.
Bank earnings were released this morning (JPM and WFC) and the results were okay. Earnings estimates have been lowered and the reaction has been muted. The financial sector won’t spark a rally, but it won’t hurt the market either.
More than 90 companies in the S&P 500 have warned. That is a fairly high percentage. Retailers are reporting dismal results and consumers are cautious.
The strongest companies announce early in the earnings cycle and we should start to see strength towards the end of next week. That would also coincide with a temporary debt ceiling extension.
Revenue and earnings growth might be flat year-over-year, but cash flows are at record levels. Companies are lean and mean and any uptick in demand will go straight to the bottom line. They continue to buy back shares and given the recent economic recovery, we might get encouraging guidance for Q4.
The Fed remains accommodative and we won’t see tapering until Yellen takes over.
The market wants to grind higher and I am adding to November call positions today. If you wait for the debt ceiling to be resolved, you will miss the boat.
I will not be posting market comments Monday morning.