Coming week could be a sober one for the market
The stock market made strong gains last week after the announcement of the Fed's latest bailout program, which will pump $40 billion into the US economy each month. But Wall Street's sentiment may shift next week, as investors begin to think more long-term.
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The punch line is that you always need more and more to get the same high and each bout of euphoria is followed by a crashing come-down.
After the frenetic reaction brought about by the announcement of the Fed's program - $40 billion pumped into the US economy each month - this week is likely to bring a more sober period for markets as investors digest what it means in the longer run and turn their attention to the remainder of the year.
That will include rancorous US elections in November, wrangling over taxes and spending cuts and a slowdown in corporate earnings.
"Right now we have this short-term euphoria. But then the question is where do we go from here," said Frank Fantozzi, chief executive of Planned Financial Services, an independent wealth manager in Cleveland. "I think after a week or so, if the underlying economic data doesn't change, you're going to see the market drop a bit and we'll continue to plod along until the election."
The effect on markets of the European Central Bank's plan to buy government bonds of struggling euro zone countries, then the Fed's opened-ended commitment to spur growth have been breathtaking. The Dow and the S&P 500 reached the highest closing level in nearly five years while the Nasdaq marched to new 12-year highs.
But in Friday's stock market action strong gains in the morning steadily eroded throughout the day, perhaps the first signs of fatigue creeping into the market.
"We are starting to get into that heady territory where you need to be on the defensive," said Richard Ross, global technical strategist at Aubach Grayson in New York. "Trying to squeak out the last 5 percent of a move when there is potentially a 15 to 20 percent downside in my opinion is pretty dangerous stuff."