Norris McLaughlin & Marcus, P.A.

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All Eyes on the Central Banks – Again

Guest Bloggers: William Doane & John Gabrielski

With two important meetings coming up this week, is it a surprise that investors performed hesitantly Monday? Maybe, but considering the strong performance by the major markets last Wednesday, Thursday, and Friday (the DOW moved up 450 points over that time), it seems that we are continuing in the Jeckel & Hyde market.

This Monday, the Dow and S&P 500 both opened slightly up, but closed relatively flat. It seems the markets are stuck in neutral pending the results of the mid-week conferences – how will the markets respond?

This Wednesday, after its two-day conference, Bernanke will announce the Fed’s updated monetary policy and perhaps, the Fed’s stimulus plan to boost the U.S. and global economy. While bond purchases (hint: QE3?) are likely under consideration, most economists believe that Bernanke will hold off until the Fed’s September meeting, giving him two more months to analyze, review, and gather evidence to come up with a plan.

Even so, investors impatiently await Wednesday’s outcome.  They are looking for some level of confidence that the Fed will have some form of plan upon which they can rely.  So, will Bernanke produce some form of stimulus in order to boost economic growth in the short-term?  Will it be the announcement of QE3, or a delay in action until September?  Investors want an answer; they want the certainty that the Fed will take action to prevent further contraction and create a platform for growth.

Moving over to Europe, this Thursday, the European Central Bank will meet in Frankfurt to discuss and build on Mario Draghis’ “whatever it takes” statement regarding the preservation of the Euro.  With investors anticipating a better outcome than that of the Federal Reserve, economists still warn that any stimulus from Thursday’s meeting will be one of only short-term strength. Possible plans to be discussed include purchasing both Italian and Spanish debts in an effort to bring down yields and decrease some financial pressure.

Similar to Monday’s results, we expect that global markets will continue to hold out, and investors will wait on any big maneuvers until the highly anticipated bank conferences come to a close. With contracting quarters, both globally and domestically, it will be interesting to watch the U.S. stocks react to Wednesday’s results. Will Bernanke push for QE3, or will he deliver yet again another gloomy report?  Will the ECB buy Spanish and Greek debt?  Stayed tuned, we certainly will.