Aug 9th FOMC unfolded

The US confidence index deteriorated sharply to 44.5 from a revised 59.2 in July 2011 – another bad news. The current index is the lowest level since April 2009.  US markets fell the initial hour in a knee jerk reaction.

On Monday, US markets were up more than 200 points as the US Spending data exceeded the consensus.

As the minutes of FOMC was released for the Aug 9^th meeting, US major indices broke thru the 11,600 (Dow) 1,210 (S&P) and 2,560 (Nasdaq) resistance.

Briefly, though the Fed remains deeply divided on more easing the minutes showed that some Fed officials called for a more aggressive response to the economy’s slowdown. As you probably know, they announced to keep rates low till mid 2013 and agreed to consider more options at the next Fed meeting on Sept 20-21 2011.

We’ve had weak numbers for the past week – New Home sales, initial claims, GDP data but the market rose 5 out of the last 6 trading sessions. With a deteriorating consumer confidence data all the three US indexes closed on a positive note.

My reading is that US investors are focusing on the next FOMC meeting with high hopes of keeping rates low with additional stimulus for the US economy and any positive news while ignoring weak economic data. If you’re focusing on weak economic data prior to reading of US markets, you would have missed the boat.

You might be puzzled as to why the 'previous' weak economic data, global growth concerns, Europe debt siuation capitulated the financial markets for the past couple of weeks and that 'now' the weak economic data are ignored this week. Am i correct?

As i mentioned before, fundamentals and technicals are not the only tools to read the markets, investors psychology, mindset and the herds' mentality plays an important past.

The strength of the US markets as dictated by the cattle’s mentality is ‘hopes’ and ‘speculation’ that the Feds will add more stimulus to jump start the economy again. How much and for how long will depend on the data collection until September 20^th 2011.

Till the next FOMC meeting, the herd will be heading North and I personally will go along with the herd. Meanwhile, the Europe debt situation will be checking on these hopes and speculation.

I hope the above answer to some of your queries on why the financial markets react differently with the same set of (weak) data.

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