QE2

Michigan Consumer sentiment gave its weakest reading this morning since August 2009, coming in at 66.6 vs. expectations for 70 and prior of 68.9. The market is nonetheless in positive territory (including consumer discretionary stocks). This is nothing unusual however, as we've seen the market be mildly higher for the past 11 days or so on essentially discouraging economic reports. One can only assume that this is due to the expectation for the Fed to announce QE2 on Tuesday next week. Good data = market up ('recovery intact, yippee!'). Bad data = market up ('here comes the Fed, whoppeee!').

I do not think the Fed will announce QE2 next week. The POMO unleashed this week seemed to be sufficient to drive the market higher and was also able to do so with surprisingly little fanfare. To continue to appear apolitical (and to maintain some level of credibility), I would expect that QE2 will most likely be unleashed in Dec/Jan.

The question now remains: If the market has only been working higher on the expectation of QE2, will we sell off (as we did in August) without a favorable announcement on Tues?

Stay nimble!