Market Preview: The Rally Returns
Updated from 8:01 p.m. to add information about Lennar's quarterly report and the after-hours session.
Ben Bernanke rekindled investor hopes that another round of quantitative easing could be in the offing, and suddenly last week's worries about a hard landing in China and rising Spanish bond yields were out the window.
Ian Shepherdson, chief U.S. economist at High Frequency Economics , isn't buying the idea that QE3 is back on though, mainly because it's not only up to Big Ben. He sees a fair amount of resistance within the Federal Open Market Committee, specifically Dennis Lockhart and Jeff Lacker, and feels it would be no picnic for Bernanke to get QE3 approved.
"We remain of the view that Mr. Bernanke could push through more QE now only after a titanic struggle, and that the recent stronger data mean it is effectively off the agenda for now," Shepherdson said. "If our macro view proves correct and the recovery in bank lending broadens and deepens, the labor market and GDP numbers will keep the Fed on the sidelines indefinitely, and its next action will be to start reducing the degree of accommodation rather than easing still further."
Meantime, S&P Capital IQ was out with some historical data on Monday that would seem to bode well for stocks from here. It turns out, a double-digit percentage gain for the S&P 500 in the first quarter leads to further appreciation more times than not.
"Since 1945, in the eight times that the '500' was up 10% or more in Q1, it gained another 3.3%, on average, in Q2 and rose in price six times, or 75% of the time," wrote Sam Stovall, chief equity strategist. "In the 10 times that the market was up 5% or more in Q1 and Q4 of the prior year, it was up an average 4.0% in Q2 and rose in price an average 60% of the time."
April is historically a very good month for the stock market with the S&P 500 up an average 1.57% since 1945, making it the second-best performing month of the year behind December, Stovall said. The outlook for the full year favors more gains as well.
"Additionally intriguing is that in these 10 years that had strong Q4 and Q1 performances, eight saw their YTD low points in January and all 10 recorded an average full-year advance of 22%, rising 90% of the time (2011 was flat)," Stovall wrote. "Only twice did the market trough with a YTD decline much later in the year: 1971 (November) and 2011 (October). So history says, but does not guarantee, that those investors still on the sidelines looking for a correction may find that when it finally comes, it will likely occur from such a high level that the S&P 500 does not dip below its prior year close, as it has in 90% of the years since 1945."