Bye Bye Bernanke

 

“All generalizations are false, including this one.” — Mark Twain

 

Apparently, the widely anticipated Santa Claus rally has been a little bit slow off the starting blocks so far. The first couple of weeks in December have certainly displayed more than a fair share of red, but the green has been not nearly as prevalent.

Bah, humbug?

Too early to tell, really, especially with the possibility of a little Fed action on the cusp, with the potential to goose the market.

So there remains plenty of time left for Wall Street to party this month, but it’s far from certain whether investors will be jolly as the New Year rolls around.

There’s a good chance that the fate of a solid holiday rally will be tied to the Federal Reserve Bank’s pronouncements scheduled for later in the week. At the least, it will be interesting to see if the Fed’s Ben Bernanke decides to exit his throne with a bang or a whimper.

Last week, Dow Jones Industrial Average (DJIA) ended in the red for the second week in a row, shedding 1.7%. Likewise, the S&P 500 Index (SPX) fell 1.7%, extending its own losing streak to two straight weeks. The two-week streak, though obviously a minor one, hasn’t occurred since the beginning of October.

The Nasdaq Composite (COMP) marched in step with the other major indices as it fell 1.5%. Tech investors can hardly complain, however, as the Nasdaq has risen for each of the last four weeks.

One of the biggest questions that investors are pondering as they sip their eggnog is whether the Fed will give any clear direction on the tapering of its bond purchasing program. After all, it will be the last time that Ben Bernanke will make any formal statement on the subject in his capacity as Fed chairman.

Does anyone really think that he wants to leave as his legacy a hyper-volatile market?

Chances are high that the December 17-18 Fed meeting may simply be used to indicate a state of status quo. Should any specifics about the tapering be offered, in terms of when it will begin and how much of the $85 billion per month of bond purchasing will be pulled back, the market will react, strong and sharp.

Though it may be true that the tapering has already been priced into the market, it may be difficult to make a valid argument that the equity market, close to its all-time highs, has really factored in the event.

Indeed, the current lofty pricing would seem to indicate the opposite, that there remains a lot of room for the market to go lower should the plug on the Fed’s current mode of stimulus get yanked.

Bernanke, however, prides himself on being a student of market history. He probably doesn’t want to go out on a down note for his professional epitaph.

It seems more likely that Fed Chairman-in-Waiting Janet Yellen would want to make any major tapering pronouncements on her watch. And, as the economic recovery remains slow and suspect, she may want to wait until the New Year and the next Fed meeting to show her cards.

So enjoy the eggnog, and while Wall Street may yet find some coal in its stocking due to some other string of economic events that unfold as the year winds down, it is unlikely to come from Big Ben’s seat.

He’ll want to get up and make his grand exit at a more leisurely pace than a volatile holiday market would allow.

What the Periscope Sees

Every week, the Sabrient SectorCast ETF Rankings rate each of the ten U.S. industrial sector iShares (ETFs) by Sabrient’s proprietary Outlook Score. The rankings are revised on a weekly basis.

At the top of the rankings this week is the Technology Sector, with a score of 89. The Financial Sector locates itself at the second spot, ending last week with a score of 78. Bringing up the rear of the top three is the Basic Materials Sector, which scored an even 60 in the rankings.

Here is the current list of some of the top-performing Technology Sector ETFs year-to-date, as of the end of the second week of December:

FDN — First Trust Dow Jones Internet Index Fund, +47.11%

SOXX — iShares PHLX SOX Semiconductor Sector Index Fund, +34.38%

QTEC — First Trust NASDAQ-100 Technology Sector Index Fund, +32.06%

FXL — First Trust Technology AlphaDEX Fund, +31.09%

SMH — Market Vectors Semiconductor ETF, +27.75%

IGV — iShares S&P GSTI Software Index Fund, +23.96%

ETF Periscope

Full disclosure: The author does not personally hold any of the ETFs mentioned in this week’s “What the Periscope Sees.”

Disclaimer: This newsletter is published solely for informational purposes and is not to be construed as advice or a recommendation to specific individuals. Individuals should take into account their personal financial circumstances in acting on any rankings or stock selections provided by Daniel Sckolnik or Sabrient. Neither Daniel Sckolnik nor Sabrient makes any representations that the techniques used in its rankings or selections will result in or guarantee profits in trading. Trading involves risk, including possible loss of principal and other losses, and past performance is no indication of future results.

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