It was the thud heard 'round the world. So disappointing and unexpected was the latest payroll report that our red-hot stock market could only do the unreasonable thing and rally further. Of course, this initial move, like much of the gains over the past 3 months, is predicated on the fact that Ben Bernanke and the Fed will not sit idly by while the economy and market crash.
"This is just what the doctor ordered for the Federal Reserve to come through next week and announce some version of QE3," says Nick Colas, the chief market strategist at ConvergEx in the attached clip. As much as stocks have soared to fresh 4-year highs, Colas thinks the stage is set, and the liquidity pump in place, to keep the rally rolling right on into the new year, with one conspicuous exception.
"I think the retail investor is still very cautious," Colas says, pointing to mutual fund outflows that continue to rise despite the surge in stocks. That means that retail investors have largely missed the bus, so to speak, although Colas says their increased bets on bonds have softened the impact of missing the move in stocks.
"So while they didn't see all the upside from stocks, they've enjoyed a nice return with far less volatility," he says.
He also feels that consumers get it as far as understanding the ugly math behind the seemingly positive drop in the unemployment rate to 8.1%. Add in improved data out of Europe, an activist Fed and the aforementioned liquidity pump and, he says, you have yourself a ''recipe for a continued rally."
"It feels like Obama right now," he says of the President's re-election chances and the latest Intrade numbers that currently pegs the incumbent's odds of keeping his job at 58.5%. Certainly still a strong number, but also one that is down following 3 days of gains and clearly not buying the President's plea for 4 more years.