You see, the Fed is unlikely to announce an eye-popping new program this time around. It may be a jawbone job on interest-rate guidance -- even though that has not worked as designed, given that companies delayed capital expenditures decisions due to tax uncertainty. Alternatively, it may be an open-ended, data-dependent monthly dose of bond-buying. Or it may be both. Assuming the "both" option occurs, we are left with this.

  • We'll have the easing the market wanted, but with limited economic benefit. For example, we may see a slight improvement on Bernanke's "grave" characterization of the labor market. The ball will have been kindly passed back to fiscal policymakers.
  • We'll have another wrinkle in potential long-term disappointment, in terms of being able to unwind open-ended bond-buying without uprooting markets. Can you imagine the market's reaction when Bernanke (or his successor) signals an end is in sight to the program?
  • We'll see the Fed lose some credibility as an institution should QE 2.5 do little to promote "maximum employment and price stability." By the way, the Fed is preparing to offer this bond-buying plan into the teeth of rising commodities prices, partly thanks to the prospect of a QE 2.5 announcement concurrent with the Midwest drought.

I think we'll need to play the short term with a touch of caution, only acting after careful consideration of valid bullish arguments. I feel that, with the wrapping-up of this major global government news cycle, with outcomes telegraphed, a market peak is around the corner. It's likely market players will now place greater stock in a possible third-quarter earnings recession and how that might not prevented by QE 2.5 and action from the European Central Bank -- and how it might arrive on our doorsteps before the fiscal cliff technically kicks into gear.

Convo Bites for the Starbucks Line

  • After Intel's (INTC) sales and earnings warning, I don't think the company's product event this week will reawaken the bulls. If anything, it may illuminate challenges for Intel.
  • When I hear strategists say it's okay to buy stocks in "overbought territory," that raises a red flag in my mind.
  • Retail is shifting into a slow period with back-to-school priced in. So, as we head into August retail sales and consumer confidence reports later this week, don't force things when it comes to top names such as American Eagle (AEO), TJX (TJX) and so on.
At the time of publication, Sozzi had no positions in the stocks mentioned, although positions may change at any time.

Brian Sozzi is Chief Equities Analyst for NBG Productions. In this capacity, he is responsible for developing independent financial content and actionable stock recommendations (including ratings and price targets) for an institutional and retail investor base. In addition, Sozzi is the Editor in Chief of the "Decoding Wall St." investor education online platform.

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