Bulls are Applauding Congress

On a day when our morning cup of coffee and favorite media network is inundated with the "doom and gloom" of the ever present government shutdown (the first in 17 years), we find the broader market up modestly on the day. Currently, at the noon hour on the east coast, we have the December E-mini S&P 500 contract up .85% trading at 1688.50. With the December NASDAQ E-mini contract up over 1% trading at 3243. Additionally, the CBOE Volatility index (VIX), hitting a three-month high of 17.49 yesterday, is down over 5.5% trading at 15.66.

So what does this positive reaction by the broader markets say? It says the markets have essentially ignored the "doom and gloom" that media outlets and pundits around the country are preaching this morning. Which leads me to the question of the day, "Why are the markets up on a day when everyone would expect them to be down?"

If you have been watching the markets, particularly the equity index markets, over the course of the past five years, the answer should be readily apparent to you. The "Bulls" of the market are actually applauding the actions of Congress! Why? Because over the course of the past five years, this market's upward momentum has been fueled by the easy money policies of an overly accommodative Federal Reserve. Thus, with the grandstanding that we are seeing on Capitol Hill around the federal budget, the end result is increased uncertainty for the economy along with the potential negative impact on growth, which makes it ever more unlikely that the Fed is going to waver from its easy money course anytime soon. Certainly not before they receive some clarity on the direct impact that the government shutdown and the pending debt ceiling debate has on the overall economy.

So what does that mean for the trader? I tend to believe it means that the broader market still has plenty of room to run to the upside. With that said, in the near term, we could certainly test that 1670 level in the S&P, especially with the uncertainty around the upcoming debt ceiling talks. However, these issues on Capitol Hill will in the end work themselves out, as they always do. Therefore I continue to be a buyer on weakness, as I think the easy money policies of the Fed will once again prevail as the focal point for investors and could have the S&P easily testing the 1725 level seen two weeks ago.

So if you hear the faint sound of clapping in the background, it is likely the "Bulls" showing their appreciation for a Congress that is inadvertently securing more easy money times to come.

Travis McGhee


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At the time of publication, Travis McGhee held positions in SPY.

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