Courtesy of John Nyaradi
Global markets continued their fade today as everyone realized that Dr. Bernanke and the Federal Reserve were not going to be forthcoming (at least for now) with another “punchbowl” in the form of “QE3″
The sound of hissing air from the bubble was almost audible yesterday after Dr. Bernanke’s speech and U.S. markets turned south.
The southerly migration continued with the sun across the globe and brought U.S. markets their 6th down day today, now mid-way through their sixth down week.
This is the longest streak of daily losses since February, 2009, which everyone might painfully remember as being just prior to the infamous “March lows” of 666 on the S&P (NYSE: SPY) and just a month before the onset of “QE1.”
The S&P (NYSE: SPY) is now approximately 6% below its recent high of April 29 and still 18% below its nominal high set in October, 2007. (How long ago those “good old days” now seem)
But today’s a different day as the Fed Beige book out today showed slowing growth in 4 districts and accelerating growth in only one district, Dallas.
OPEC couldn’t agree on a production output number which boosted oil nearly 2%, and this disagreement was the first in two decades.
The panic in the Administration is becoming almost visceral as they face 9% unemployment, a slowing economy and an election in 18 months or so. I’m sure they’re all vividly aware of Bill Clinton’s famous slogan, “It’s the economy, stupid,” and so today they’re floating a trial balloon for a payroll tax break to help out business hiring.
The Republicans are floating a trial balloon of their own, that a “technical default” by the United States would be no big deal, but holes were quickly poked in that balloon by the Fitch rating agency who threatened a U.S. downgrade in that event, and St. Louis Fed President James Bullard said that mishandling of U.S. fiscal matters could trigger a global “macro shock.” (Now there’s a scary term, if you’ve ever heard one.
So here we are. Economic stimulus is virtually off the table with the ongoing budget battle with its August 2nd deadline.
The Fed has no wiggle room for the time being to launch a “QE3″ for political, economic and P.R. reasons, and so for today our beloved punchbowl has been ripped away and global markets seem to be somewhere between hangover and withdrawal.
Looking at a chart of the S&P 500 finds no support between here and 1250, and a drop through there puts 1180 squarely in view.
At Wall Street Sector Selector, we remain comfortable with our inverse ETF and put options positions and expect still lower prices ahead.
Disclosure: Wall Street actively trades a wide range of ETFs and positions can change at any time.
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