EmailThe major averages have moved downhill this week in an uphill battle over the fiscal cliff, the eurozone, and Middle East tensions. There are other issues to be sure, but whatever the reason, buyers have stuck to the sidelines.
Entering today's session, which will have the media focusing on the talks between President Obama and Congressional leaders, the S&P 500 is down 1.9% for the week.
There was little buying interest overnight as the S&P futures spent most of their time underwater.
That move followed form with most foreign markets, which were dragged lower in part by the weight of the underwhelming action in the U.S. market. Misgivings about the eurozone's ability to manage its debt crisis effectively -- and Greece in particular --contributed to the weakness.
Japan was the notable standout. The Nikkei rallied 2.2% and is up 4.2% since Wednesday in response to a call from Shinzo Abe, a leading candidate to be Japan's next prime minster, who said the BOJ should effectively print money at will with an eye on a 3% inflation target to stamp out deflation.
In an equity universe that feeds on central bank stimulus, the symbiosis of Abe's policy view and the equity market rally needs no further explanation.
The latter point notwithstanding, it has struck us this week how non-responsive the U.S. market has been to headlines out of the Fed perpetuating its ongoing support for easy money.
On Tuesday, Fed Governor Yellen said she thinks optimal policy rates would hold near zero until early 2016. The S&P 500 fell 0.4% that day.
On Wednesday, the FOMC Minutes revealed that a number of participants felt additional asset purchases would be warranted after Operation Twist ends. The S&P 500 fell 1.4% that day.
Yesterday, Fed Chairman Bernanke reiterated that the Fed will continue to do what it can to support the housing recovery. The S&P 500 dipped 0.2%.
There were other factors driving the losses those days. The point, however, is that supportive comments out of the Fed didn't turn sentiment on those days.
That could suggest the market is indeed fixated on the implications of going over the fiscal cliff and little else (Bernanke has said in the past the Fed doesn't have the capability to neutralize the economic effects of going over the cliff) or perhaps it is a budding acknowledgment that the Fed's QE support has hit the point of diminishing return.
We can't be certain of either assessment, but the non-response to the aforementioned Fed guidance has been peculiar.
Today, the market is indicated to open about 0.3% higher. There has been a reversal in the opening indication in the last hour. Press reports suggesting the White House is in internal talks to replace the sequester with smaller cuts have been cited as the catalyst for the reversal.
While such a headline isn't a surprise, the knee-jerk reaction to it shows the market is clamoring for any sense of progress on the fiscal cliff compromise.
At the least, it provides some headline fodder to do some initial bargain hunting in a short-term oversold market.
