What the Fed Said

We certainly live in interesting times.

Today, I’m wondering if the market was worried that the Fed would announce
QE3 at the yesterday’s conclusion of the most recent FOMC meeting. I mean,
how else do we explain the 429 point ramp job the Dow Industrials put
in?

It may not have been a majority, but there were a significant number of
economists who were expecting the Fed to announce the next phase of
quantitative easing, or QE3, yesterday.

It didn’t happen…

The Rise of the Machines (MSFT, NOG)

For the second time in a week, we had a “margin
call” day. That’s what I’ve started to call those days where the market
sells off steadily all day, because it’s as if the market itself received a
margin call, and has to sell stock relentlessly, regardless of
fundamentals.

Now, since I mentioned fundamentals, that’s the place to begin our
discussion of what’s happened to the stock market lately – and what we
should be doing about it.

As I wrote yesterday, analysts and strategists alike are on record saying
they do
not want to lower earnings forecasts for stocks
. They typically cite
the fact that companies have steadily grown earnings, even when economic
data weakens, like last summer, when economic data was so weak, the Fed
began the bond buying program known as QE2.

Tech Market Heats Up: What

Congress and the Obama administration are at it
again. Talks broke down over the weekend, which is a familiar development.
The impasse is certainly weighing on the stock market.

Precious metals are rallying, bonds and stocks are down. Of these assets,
it’s the move in bonds that are most telling. Bond prices are falling, and
yields are rising, because failure to pass a budget opens the door for a
downgrade of U.S. debt from the ratings agencies. That, in turn, raises
borrowing costs (interest rates) because repayment is suddenly less
certain.

Why Companies Aren’t Hiring

China’s got a heck of a nerve. Yesterday, CNN
reported that the Chinese government’s State Administration of Foreign
Exchange published the following statement on its website:

“We hope the U.S. government will take responsible policies and
measures to boost global financial market confidence and respect and
protect the interests and investors…”

And even went so far as to say that the debt issue is a “… reflection
of the credibility of the U.S. government…”

Now, I know none
of us are happy
with the way Congress and the administration has
approached our debt issues so far. But China’s sitting in its own glass
house.

Tech Earnings and Apple

It’s probably no surprise that Apple
(Nasdaq:AAPL)
beat earnings expectations last night. After all,
Steve Jobs is an egomaniac who reportedly always under-promises so he can
enjoy the attention when he over-delivers. It’s good showmanship, and good
for a pop in the stock.

Still, the results were impressive. Net earnings beat by nearly $2 a share
($7.79 vs. $5.87 expected) and sales came in $3.6 billion better than
expected at $28.6 billion. Apple sold 20.3 million iPhones and 9.3 million
iPads.

Perhaps even more amazing, Apple added $10 billion to its cash hoard during
the quarter. It now has $76 billion.

Why JP Morgan Always Beats (JPM)

JP Morgan (NYSE:JPM) turned in a
very solid second quarter earnings report this morning. Revenue was $2
billion better than expected, at $27.4 billion. And earnings were $0.06
better than expected, at $1.27 a share. This was the 11th consecutive
quarter that JP Morgan has beaten.

You’d think analysts would be able to adjust their estimates to account for
the consistent out-performance at JP Morgan. And truth be told, they
probably are.

But there are so many little things the company can do to get its quarterly
numbers that analysts have little chance of nailing it.

Do We Need QE3?

Yesterday was an interesting one for the stock
market. There was plenty of negative news hitting the wire — from the EU’s
continued inability to decide on a course of action, to the continued
standstill of our own budget debate.

But investors glommed onto a suggestion from the minutes of the last FOMC
meeting that QE3 could happen if the economy continues to struggle, and
stocks rallied sharply right at 2 pm. The mini-rally reversed just as
quickly as it began.

The stock market would clearly like more quantitative easing. But it would
not be a good thing for the economy in the long run. It is time to let this
economy slog through the housing problems and the unemployment problems
without flooding the market with cash.

Alcoa Doesn’t Blow It: Stocks Rally

Well, Alcoa (NYSE:AA) managed to
meet on earnings, and beat on revenue. All in all, I’d say that’s pretty
good. I’ll also say it’s a darned good thing Alcoa came in good. After a
day like yesterday, investors needed some good news, or at least some “not
bad” news.

The S&P 500 dropped below support at 1,320, though only by a point.
Volume wasn’t particularly heavy, so we shouldn’t read too much into the
1,319 close. In fact, yesterday had all the makings of a bear trap:
negative headlines, a drop through support, right at the outset of earnings
season.

Of course, we will need to get some more positive earnings news to turn the
tide. And we will have to wait for Thursday when JP Morgan
(NYSE:JPM)
and Google (Nasdaq:GOOG) report.

Now, here’s some reader mail.