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Investing Specialists

No QE3 for Now

After a very volatile week in the markets, indicators remained consistent, and no third round of easing appears to be looming.

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I find it hard to believe as I write this that the S&P 500 is down a mere 2% for the week after last Friday's S&P downgrade of U.S. government debt. And with all the stunning up-and-down days, we ended the week with a fairly typical weekly rate of change in stock market prices. U.S. Government bonds were one of the best-performing assets this week, seemingly thumbing their noses at S&P. While psychologically devastating, the downgrade didn't change much from a practical standpoint. I'm hopeful this will prove to be another "Y2K" moment--a wildly anticipated and prepared-for calamity turning out to be a nonevent. Furthermore, the downgrade didn't provide investors with any news that wasn't already blatantly obvious to investors and consumers alike.

Fed Vows to Hold Rates--No QE3 for Now
Thank goodness the Fed didn't give in to the market and implement QE3, which I think would have proved ruinous by continuing to buoy commodities and financial markets at the expense of consumers. They did offer to try to keep current low rates through mid-2013, ending debate on what they meant by an "extended period of time." The Fed also reduced its outlook for the economy.

But as I said in last week's column, now is not the time to give up on this economy. The healthy--if not necessarily robust--data continue pouring in. After last week's positive jobs report, we added a nice monthly retail sales report for July this week along with another improvement in the initial unemployment claims report. Weekly retail sales held up well, even in the face of awful market headlines. Positive earnings continued this week too, as results from  Cisco (CSCO) and certain retailers, especially at the high end, helped lift the market. Gasoline prices are dropping as well; the national average price of gasoline fell back to $3.62 from its May high of $3.99 with a slight upward detour in July. Coming with some cooler weather and discount prices, the back-to-school season could be better than expected for consumers.

Robert Johnson, CFA does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.