Sometimes when you're investing in the stock market, it's easy to get focused only on the stocks that you are watching in your portfolio. However, it's important to remember the larger macroeconomic, political and fundamental forces that are driving the market at large. After all, it is often these forces that account for the majority of any individual stock’s price movements during a given day, week or year. At Learning Markets, we always try to start with a 30,000 foot view when we make any investing decision, and that's what we're going to do in this Market Commentary blog: keep the big picture in perspective.

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Fed's Announcement is not just a Christmas Card

When you go to the company Christmas party in December and you see little envelopes being passed out, your eagerness to get one isn't inspired by the snow drifted, blue-toned landscape printed on a greeting card--you're looking for the green inside. The year-end bonus that you have tried to pretend you weren’t planning on, or expecting, is now here and with it the reality that you have actually had a little plan all along. As a result, you have an expectation in mind and if the number in the envelope doesn’t match your expectation, or worse, there is nothing but the Christmas card, then you’ll be miffed.

But what happens if you get exactly what you expected? Are you more likely to be gleeful and excited, or mildly glum that there was no surprise of something that exceeded your expectations?

Ben Bernanke delivered a lot more than a greeting card with a frosty landscape. He painted a picture of dire outcomes and frozen financial wastelands if the congress fails to manage a deal on the fiscal cliff issues. To warm investors’ bones he fired up the presses again with more bond purchasing programs to start up as soon as Operation Twist subsides.

The markets reacted initially with optimism as prices rose but fell later in the day as Bernanke delivered a press conference with plenty of reminders that the economy is still in a financial winter. It is interesting that the shape of Wednesday’s candle after the close shows a tall shadow (or wick as it is sometimes called) suspiciously similar to the last FOMC statement. The market may also be telegraphing signals that it will follow a pattern similar to the previous announcement of a QE program—at least as of the mid-day on Thursday.

S&P 500 – Daily Chart

It is as if the markets have looked in the envelope, found what they were expecting and while looking at the accompanying card were reminded of the bleak economic outlook. In so doing, they scaled back their little plans for how to spend the bonus and decided it might be better saved for a coming, yet more wintery day. Could it be that the markets may sell off for a few more days heading into next week? Perhaps so; but if that worries you, be sure to read Tuesday’s Strategy Talk blog post for an idea of what to do about it!

Gordon Scott, CMT, Learning Markets Analyst

Posted by learningmarkets on Dec 13, 2012 11:18 AM CST

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13 Bang Bang!!!

Date Posted: Dec 14, 2012 at 4:50 AM

Thanks Gordon. I was hoping that the Fed would put more pressure on the House and the President to come to an agreement. Imo, Ben is doing a good job saving our economy. I would bet the Fed hates doing more QE, but they do not want to repeat the misakes of the Great Depression and Japan's lost decade. Come to think of it, Ben is probably the best "leader" we have in Washington. He is doing more than the Congress or the President.

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