The stock market is reliant on the Federal Reserve and is waiting for more quantitative easing (QE) because that is the only bullish catalyst, although a third round of QE will be a failure, as were the first and second rounds, Todd Schoenberger, managing principal for The Blackbay Group, told Yahoo.
“Traders want QE3, 4 and 5 right now, because we know that earnings are not going to support this market,” Schoenberger said. “There’s nothing else out there as far as a bullish catalyst that we’re all waiting for.”
The market reacts positively every time the Fed says it is ready to act if things become worse, even though it is always reiterating this statement, because “this is a headline-driven market.”
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“This market doesn’t care about fundamentals, maybe technical analysis is still there, but realistically this is a headline-driven market,” he noted, adding that everyone looks at the “Twitter tape” for headlines instead of the ticker tape and news goes viral quickly, causing the market to react instantly.
Schoenberger believes that lowering rates any further will not stimulate the economy, but will actually cause layoffs in the financial sector, particularly small, community banks.
“You cannot get close to 0 percent, that’s the problem with QE3. Because what they want is something that’s going to stimulate getting people to borrow and getting banks to lend and maybe actually creating some type of growth,” he told Yahoo. “They’re not doing it. QE1 and QE2 was a failure, QE3 will be as well.
In order to get the economy going, he said that sentiment needs to improve.
“We have pure division in this country right now. A lot of finger pointing. Occupy this and that. I’m sick and tired of it,” Schoenberger stated. “Get everybody together. Improve the sentiment. Get everybody growing. Get everybody working.
“You still have people out there looking for a handout, looking for something from the government. It’s bad,” he added.
“The Fed has got to take a stand here,” he said, noting that even if we have QE3, Europe is still a problem.
“Are they looking for a bailout?” he asked.
“The IMF has $350 billion in cash on its balance sheet right now and they’re looking for a bailout because they don’t think they’re going to have enough money bailing out all the other countries,” Schoenberger said.
“It’s got to stop now,” he remarked. “You’ve got to worry about the domestic problems in this country.”
Jason Trennert, chief investment strategist at Strategas Research Partners, also believes QE3 will not do much to stimulate the economy.
With economic growth likely to remain sluggish, Bernanke is more concerned about deflation than inflation, Trennert said.
"So I still think you're going to get something from the Fed,” he told Yahoo. “I just don't think it's going to be all that effective.
"You're reaching the limits of what monetary policy can do for the overall economy. If you look at interest rates, that’s not the impediment to economic growth. … It’s a lot of things on the fiscal side,” Trennert added.
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