David Moenning

About the Author David Moenning

David Moenning is a the Chief Investment Officer at Heritage Capital, which focuses on active risk management of the U.S. stock market. Dave is also the proprietor of StateoftheMarkets.com, which provides free and subscription-based portfolio services. Dave began his investment career in 1980 and has been an independent money manager since 1987. Thus, Dave has been live on the firing line and investing for a living for more than 25 years.

Really…Quantitative Easing in China?

To be sure, the current stock market seems to have little memory from one day to the next. This is evidenced by the fact that Monday’s gain marked the first time since February 17 that the S&P 500 managed to put in back-to-back gains over even a two-day period. And given that the market now appears to be well on its way to the 12th direction change in the last 4 months, to say that things have been volatile is perhaps the understatement of the year so far.

Stocks closed out Friday looking weak. Sure, the screens were green as the closing bell rang. But after the big downdrafts seen on Wednesday and Thursday, Friday’s rebound seemed like it belonged in the “uninspired” category. As such, the bears were out in force over the weekend, telling anyone willing to listen that this was it; the big one was finally upon us.

Our furry friends talked about the out-and-out dive in earnings expectations. They shouted about the weak economic data. And they pronounced that lofty valuations meant that the end was nigh for one of the greatest bull market runs in history.

But then Monday arrived. And with it, a 263 point joyride to the upside for the venerable Dow Jones Industrial Average. And while there is little doubt that the algos chased their tails once again yesterday, likely exaggerating the move in the process (don’t get me started), there did appear to be a couple of catalysts that were indeed worthy of some buying.

Maybe She Actually Was As Dovish As She Sounded

One of the excuses du jour given for the outsized gains in stocks on Monday was the idea that Janet Yellen’s speech Friday afternoon sounded a bit more dovish than the party lines that had been offered up by various other Fed officials last week. If you will recall, stocks vaulted higher after the recent Fed meeting because Ms. Yellen’s comments sounded a lot friendlier than had been anticipated.

If you will recall, Janet Yellen appeared to be winking wryly at the cameras during her press conference as she all but assured investors that the Fed was still a friend to the stock market.

However, part of last week’s dive was attributed to the idea that a handful of Fed Governors had failed to join Yellen in the uber-Dove zone when they had their chances in front of the microphones. No, the fact that Bullard, Evans, and friends didn’t go the extra mile to imply that the FOMC wasn’t likely to begin hiking rates in June left traders feeling like they had misinterpreted Yellen’s words.

So, the fact that the Fed Chair used Friday’s speech as an opportunity to reinforce her economy friendly views suggested to traders that their initial takeaway from Yellen’s press conference were correct. So, why not return the indices to where they stood after the FOMC meeting? Why not, indeed.

Wait, What… QE in China?

The other catalyst for Monday’s little jaunt was the use of the words “Quantitative Easing” and “China” in the same sentence. And if you find yourself surprised that the Chinese would even consider joining the QE party, join the club.

But cutting to the chase, the topic of China’s monetary policy was in focus again overnight as PBoC Governor Zhou noted his country’s growth rate had fallen too far and expressed concern about declining inflation (gee, that has a familiar ring to it, doesn’t it?). The country’s head banker highlighted the need to be vigilant about deflation and suggested that China has room to act on both rates and “quantitative measures.”

So with the ECB printing up €60 billion a month, the Japanese running the presses 24/7, and China now hinting at the idea of a QE program, the watchword of the day on Monday seemed to be “Party On, Wayne!”

The only question, of course, is how long the party will last this time – 1 day, 2 days, maybe even 3???

Turning to This Morning…

And just like that, Monday’s jubilant mood is gone. With the exception of Hong Kong, all the major foreign markets are in the red and perhaps more importantly, none saw fit to follow Wall Street higher. As such, the up-one-day, down-the-next market that we’ve been enjoying for the past four months looks like it will continue unabated on the last day of Q1. Although China announced that it will launch deposit insurance in May and there is more rumblings of stimulative action, Chinese markets took a break from their recent tear and finished lower. Speaking of lower, European bourses are down across the board as talk of “tapering” the ECB’s QE program (which is less than one month old, for the record) has folks worrying that the ECB will once again do too little to have any meaningful impact. In addition, there is Greece and the geopolitical mess in Iran. Thus, it is not terribly surprising to see traders in the U.S. forget all about yesterday and prepare to go the other way once again. U.S. stock futures are currently pointing to a down open on Wall Street.


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