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Mergers, Housing and Earnings

September 27, 2010 – 4:59 pm

This week the Federal Reserve will be meeting and we will see August housing data for both starts, and sales for new and existing homes. The Fed will likely do nothing other than give us further assurance that we are in a slow recovery. They will not be moving interest rates and the only direction they ‘could’ move them is up. I think they should start to tighten a little if only to give themselves breathing space later on and to provide a little confidence in the market. That is not going to happen. If they begin to tighten monetary policy it will not start by rising interest rates. They will likely start by buying back certain debt instruments and it will be a slow process. They are not interested in frightening the market place.

Housing will be weak as it has been for several years. The data might be a little stronger than last month’s but last month’s numbers were so very bad that some improvement is likely. Any improvement is not an indication of anything other than maybe we have hit bottom. Prices for homes will remain weak but sales, with the extra low interest rates, will firm up. I expect mortgage rates will remain low for an extended period of time, but housing will not really begin its recovery until employment improves.

Finally, what might move the market further will be the merger activity, which continued this morning with three large deals, and corporate earnings. The quarter will be ending soon and that means earnings season is right around the corner. Traders will begin to focus on those reports trying to anticipate the winners and losers.

Good Trading
Steve Peasley

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