Markets Consolidate Gains, Wait On Fed

“Now the market smells a move by the Fed in two weeks.”

– Jim Swanson, Chief Investment Strategist, MFS Investment Management.  Quoted in “Fed’s Hints of a Rate Cut Cheer Markets” (subscription required).

Today was actually a pretty positive day for stocks.  The Dow added 22 points, the Nasdaq 5, and the S&P a little less than 1 (because of its heavy financial weighting).

But there was real fear that the powerful rally of the last two days would give way to profit taking and selling.  The fact that markets held at this level is bullish.

One slightly worrying development was the approximately 10 basis point decrease in yields on the 2 and 10 year treasury bonds.  This represents some substantial treasury buying (yields and price move in opposite directions).

Combined with money outflows of about $180 million from stocks today, this suggests that beneath the surface there was in fact a bit of profit taking as investors shifted money out of stocks and back into the safety of bonds.

Bernanke is scheduled to give a talk this evening and it looks like the trading for the next week and a half leading up to the Fed Decision on Tuesday December 11 will be mostly about the Fed.