With our second debt crisis averted this market has shown signs it wants to rally. Alot of money has been sitting on the sidelines and needs to be put to work. Some larger investors were apparently betting that Congress would not succeed in striking a deal to avoid financial catastrophe. These investors were actually on the wrong side of the trade when the news started coming out for a possible agreement. That is why this market did not rally 500 points on the news. Instead some lame comment was given about how IBM missed its estimates and "Wall Street was worried." This blog has written several times about how Wall Street actually ignores IBM in favor of some of the other darling tech stocks. Expect this market to rally more due to the favorable economic environment we are in. The bad news of government shutdown hurting our economy only means that the Fed will not start to taper its bond buying anytime soon.
As for Washington:
All that was missing this week was story time and a nap. Most of our legislators needed to be placed in time out for their behavior over these last few weeks. Only an eleventh hour agreement brokered by Senators McConnell and Reid averted an economic disaster. Credit should be given to these Senators for acting like mature adults who actually showed some ability to lead our great nation in this time of crisis.
The House GOP showed they are too fragmented to accomplish anything. Their strategy of not compromising, even within their own party, was flawed as they came off as a bunch of whiners who are being too extreme. This played directly into the hands of the Democratic party which has been promoting that message all along. Hopefully they can learn this lesson before they are voted out of office by the American people.
This market wants to rally because:
1. Large institutional money has been sitting idle and needs to be put to work.
2. Any economic damage from the government shutdown will postpone Fed tapering which will be favorable news for the market.
3. The weekly Dow chart above shows the market still has room to the upside.
4. We are entering a seasonal time that is traditionally good to invest in the market.
5. Investors want a return that is higher than the T-bill rate and the stock market is still a good place to find it. Many of the Dow stocks are paying a dividend above 2% and these companies are more stable than most banks.
Note: The above information is for educational purposes only. Any decision to buy, sell, or hold a specific investment for a portfolio should first be reviewed by your financial advisor.
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