Traditionally the first trading day after Labor Day is when the grown-ups return from summer vacation and tell the stock market where to go. Judging by Tuesday's price action, the adults don't have any idea where stocks are heading.
After futures dropped so low this morning that the NYSE invoked the mysterious Rule 48, stocks settled into their familiar range; dipping under 1,150 on the S&P500 before stabilizing and hanging out in negative territory all day. It was in the final minutes of trade today that a significant bounce took the market well off the morning lows and cut losses in half. The DJIA fell 0.90% to 11,139, the S&P 500 fell 0.74% to 1,165, and the Nasdaq fell 0.26% to 2,474. Aaron Task from Yahoo's Daily Ticker joined Breakout to discuss the day and more importantly the week ahead.
For those keeping track at home, since the S&P500 definitively broke below 1,250 at the beginning of August, it has traversed the area from about 1,220 at the highs, to 1,120 at the lows on five occasions. While there's something to be said for a market where nobody stays wrong for very long, if you like a market trend it may be time to focus on preparing your Halloween costume. Even traders are getting frustrated trying to figure this out.
Yet, as always is the case with the stock market, there is hope. In this case it revolves around the idea that two events scheduled for this week could snap us out of the range-bound malaise.
The first Big Deal is on Wednesday when the German constitutional court votes on the legality of the European Central Bank's plan to expand its balance sheet to prop up non-German economies in the European Union. Now, there are those who will tell you that the German vote doesn't matter. Those people are wrong unless they are invested in magical equities with no exposure in any sense to Europe. For the rest of the investing world, particularly the portion of it that's long any sort of bank-related stocks, Germany bailing on the EU is a very big deal. This isn't something you can follow in the Euro currency or even gold. Watch the financial stocks. Watch the DAX. The EU without Germany is NATO without the US; effectively nonexistent.
The Second Big Deal is President Obama's Thursday evening address before a joint session of Congress on the economy and jobs. Aaron Task is more concerned about the Swiss National Bank intervention --setting a floor for EUR/CHF at 1.20 Swiss Francs-- and believes the speech means nothing. Loathe though I may be to say, he's probably right. The President will likely just mail it in by trotting out a tired stump speech about obstructionist Republicans. He'll most likely use phrases like "folks are hurtin'," dropping the G to demonstrate how he's a regular guy. The President may even refer to Washington, D.C. in the third person without any sense of irony (my personal favorite). If President Obama lets out the same tired shtick, then he loses reelection in 2012. It's that simple.
But he shouldn't. With a 9.1% unemployment rate, Obama could put massive pressure on the Right by simply trying something new. Something radical. Anything short of groundbreaking, tangible, job creating policy proposals by the President, and it's game-over between now and next November.
Gridlock can be a good thing in Washington, but only when times are good. This isn't one of those times. The market is expecting more of the same from the President. If we get it, and if the EU is somehow duct taped together for another day, the markets are going to stay right where they are; stuck between 1,150 and 1,250.
If that happens I'm going to beat the rush and start deciding between dressing as an astronaut or Fabio for Halloween.