The Hope of Stimulus is in the Air

Investors have been looking towards the Jackson Hole economic summit for insight from Ben Bernanke on the the economy. The key piece they are hoping to gain from this meeting is the Fed’s plan of action looking forward relative to stimulus. There isn’t likely to be any new major insights from the Chairman, but the anticipation has been building nonetheless. If there is no clarity produced relative to any action to be taken by the Fed and a timeline to go with the planned action, look for investors to react with a negative tone. Will it be a long lasting event or reaction? Not likely as the September 12th meeting is just around the corner and the focus will shift to that meeting and any hope of stimulus. In other words, the speculation pipeline will just reload and keep on projecting actions to be taken.

The other shoe yet to drop, is what the European Central Bank will do relative to stimulus and sovereign debt. There meeting is next week and investors are still looking for some details relative to the type of stimulus and timeline for it being implemented. Some believe it will take place in September others are not quite so optimistic. As a result of the delays we saw the market reaction on Thursday in advance of the Jackson Hole meeting on Friday, and we may see similar response next week prior to the ECB meeting. The EAFE Index dropped more than 1% and Spain, Italy and Germany all fell nearly 2% on the speculation facing economic picture and lack of clarity. The dollar rose, crude fell, bond yields fell and stocks fell all in response to the uncertainty of the stimulus actions or non-action. Every speech or meeting held has investor attention for some insight or information on what or when the stimulus will be enacted.

What are looking for today? Peace and happiness! Aside from that… some type of response from investors to Bernanke’s comments. Good, bad or indifferent his speech will be the catalyst for the day. That aside, the economic data continues to show slight improvement and from my view that offers more reason to buy stocks than anything the Fed will offer. However, a market that faces an economy that is struggling to grow loves liquidity. If it is provided stocks will respond. If it is kicked down the road investors speculate and we will continue the trend with some volatility. The least likely event is to state that there will be no stimulus, then there would be widespread selling. Thus, look for the opportunities after the speech and looking forward.

Retail reamins a sector to watch on the upside. The retail sales data was positive on Thursday showing stronger results than expected. Both XLY and XRT remain in a solid uptrend and we continue to hold our positions looking for a test of the March highs. Stocks like Zales (Z) continue to move higher on solid earnings. Scanning the ETF holdings in both instances shows opportunities. We added JC Pennys to our portfolios this week. Tiffany (TIF) looks ready to break higher and Gap (GPS) made a nice continuation move on Thursday. This remains a sector to watch and trade looking forward.

Healthcare is testing the top end of the trading range and attempting to break higher. The leadership has been in the biotech and healthcare providers. The medical devices are in position to move higher, but have hit against some resistance. The pharmaceuticals continue to move sideways, but there are some movers worth owning or at least putting on a watch list, if you filter through the sector.

If Thursday’s selling continues today, look for the opportunities. Unless the Bernanke speech is a total bomb, there will be a bounce off support. That may be at 1395 or 1373, or even the 50 day moving average on the S&P 500 index, but the bounce will come, because the Fed is in too deep, and if by some miracle the economy improves enough going forward, it will act as a catalyst. Either way there is some hope on the horizon and a pullback and test would give more opportunities to own stocks.