With Q3 earnings reports upon us in earnest, the market tug of war between the economic reality of sluggish US growth on one side and the Fed’s printing press on the other will go a few more rounds in the next few weeks. The Fed certainly has won the battle of asset prices since early Sept but will likely take a back seat until we refocus on it at the end of Oct as corporate America’s drive thru Q3 and the outlook for Q4 will matter most and stocks I believe will consolidate at or below current levels during this process. This will set up a late Oct/early Nov rally due to the elections and Fed action. The FOMC minutes from the Sept 21st meeting, which officially set the groundwork for even more initiatives, will be out at 2pm. While China’s move to raise the reserve requirement for its big banks for two months weighed on most Asian stocks, the Shanghai index wasn’t bothered and rallied to a fresh 5 month high.
A helpful measure of the business outlook for small companies, the NFIB optimism index, rose .2 pts to 89, a touch below expectations and the components were mixed. Hiring plans fell 4 pts to -3, the lowest since Nov ’09 but those that said its a Good Time to Expand rose 2 pts. Those that Expect a Better Economy rose 5 pts but those that Expect Higher Sales fell by 3 pts. Cap ex plans rose 3 pts and those firms planning on increasing inventory rose by 4 pts. Easing of Credit Conditions remained at -14, the lowest since Apr. Notwithstanding higher commodity prices, those that plan on Higher Selling Prices fell by 3 pts. An aside, Greece sold 6 mo paper at a yield of 4.54%, below the one done last month at 4.82%.