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Economic Review

9/29/2009

Will the post FOMC exhaustion Stock reversal signal the start of a market correction?  Who the heck knows.

Last week the Federal Reserve came out of its deliberations with no change in interest rate policy, mentioning the recovery was continuing for the US economy.  The already exuberant Equity market responded with an explosive rally, sending the Dow above 9,900 with bulls seeking the 10,000 mark.  As exuberant as this move was, it marked at least a short term top to the unbelievable gains posted in stocks over the past couple of months, as the major Indexes posted losses by the closing bell.

Given yesterday’s explosive rally on very light volume and on no significant news, the question is…will last week’s reversal hold and mark the turning point for continued declines in Stock prices?  And the answer is….Who the Heck Knows.  Reality is that the recent rally for the major Indexes, some 50% off their lows, has been a function of short squeezes and an inflation trade, both of which provide pathetic fundamentals for sound economic growth.  Can the market go higher? Of course it can.  It’s been known to trade on air for years and post exuberant gains only to suffer destabilizing declines at some point.  It appears that good old risk taking and high speculation is back…and the result should be a very destabilizing event at some point.

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