The Summers Rally

Today is the start of Fed week, but the big Fed news today isn’t about this week’s meeting. Instead, it’s that Larry Summers has withdrawn his name from consideration for being the next Fed chair. This almost certainly means that President Obama will appoint Janet Yellen to succeed Ben Bernanke.

The market is rallying strongly on the news. The S&P 500 is back over 1,700 this morning and is currently up to 1,702. We’re not far from an all-time high for the index. The Russell 2000, in fact, is already at a new high.

I think Wall Street saw the Summers vs. Yellen battle as a proxy of easy money versus tighter money. I understand the feeling and I’m in support of continued stimulus but those characterizations are very much over-simplified. Anyone who has studied the Fed from the mid-1990s knows that Janet Yellen is far from an automatic vote for the doves. She was once described by a colleague as a “small lady with a large I.Q.”

While I think Larry Summers is brilliant, as he’s often described, I’ll charitably add that being Fed chair doesn’t match well with his skill set. As a rule of thumb, if the S&P 500 gains $125 billion in market value on the news that you won’t be in charge of the Fed, then that’s probably a sign that it wasn’t meant to be.

One interesting group to watch lately has been the homebuilders. The Homebuilders ETF ($XHB) had been a giant winner until this spring. XHB vaulted from $12 in October 2011 to $32 by this May. Then it started lagging the market as interest rates rose. From May 14th to August 14th, the XHB lost 10.6% while the S&P 500 gained 2.1%. That’s not a huge loss but it was a surprise after being such an easy winner for so long. But lately, the XHB has snapped back to life.

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Our Buy List stocks are doing quite well this morning. AFLAC ($AFL) is back over $62 per share. FactSet ($FDS) and Ross Stores ($ROST) both hit new 52-week highs, and Cognizant ($CTSH) is close as well. Oracle ($ORCL) is doing well, but we’ll learn a lot more later this week when they report.

Posted by on September 16th, 2013 at 11:05 am


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.