Da Bulls and Da Bears: The See-Saw Market and Prospects for QEIII

If you’re from Chicago, the first part of this headline probably conjures up images of two pretty good sports teams. However, for the rest of the country, it represents the ups and downs of the stock market over the past 12 years. Last week the bulls reigned, while a week earlier, the bears had bragging rights. For advisors who used the 1980s or 90s as a reference point, the past decade has provided a whole new learning experience. This see-saw market has many people seeking answers. 

It’s rather obvious that Europe didn’t solve its problems overnight, but last week saw the markets have one of their best weeks in a long time. What was the catalyst? What propelled stocks? More buyers than sellers? Was it the testimony of Fed Chair Ben Bernanke? Although he didn’t actually say anything about QEIII, his silence seems to have been taken as a positive sign. This reminds me of how some used to read former Fed Chairman Alan Greenspan by the way he carried his briefcase. We are, you see, creatures in need of answers. And when there is no absolute answer, we sometimes opt to invent one.

Let’s take a closer look at QEIII, or should I say, the markets’ most likely reaction to quantitative easing. Japan, which has had over 20 years of fighting deflation, has used quantitative easing on several occasions. Each time, stocks rose. Then when QE was finished, stocks fell. The same thing has already occurred here.