QE3 not likely

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The Next Big Market Events: Fed, Jobs & the Super Committee
By Jennifer Carinci

PostsWebsiteEmailRSSBy Jennifer Carinci | Breakout – 1 hour 34 minutes ago
In focus this week will be the FOMC's 2-day policy meeting which wraps up this Wednesday afternoon with a quarterly press conference held by Fed Chairman Ben Bernanke. Wall Street will listen for additional quantitative easing —QE3, any change in language regarding the "significant downside risks" to the economy iterated in the most recent September 21st statement, and any change in time frame for extraordinarily low interest rates through mid-2013. Bottom line, the market wants QE3; but after the latest reading of GDP came in at 2.5% for the third-quarter, the Fed has a small window of opportunity to take a breather and sit out of this round of economic heroism. Bernanke's press conference will be the main event, where the Fed chief is expected to update the committee's outlook for the economy.

This Friday morning we get another read on the Labor Market with the release of the October jobs report. Our current unemployment rate is 9.1%, and the economy added 103,000 jobs in September. Anything shy of +250,000 new payrolls created is a non-event as far as real economic improvement. October consensus estimates: Unemployment rate at 9.1% and +90,000 payrolls added.

This leaves us with the big event soon to grip Wall Street and Main Street alike. While the European debt crisis, Occupy Wall Street, and the unexplainable October rally have dominated the headlines, the Super Committee has been flying under the radar. The group of twelve members of Congress -six Democrats and six Republicans- is quietly approaching its November 23rd deadline to reach an agreement to cut at least $1.5 trillion from the Federal deficit.

After watching the European debt drama which made austerity a new buzz word, the reality is that some form of it is making its way to America. The question is how the Super Committee will do it and whether the markets and the general public will accept the proposals. "When you start dissecting and getting into the weeds of the details, clearly that's something traders and investors will start to analyze in the next couple weeks," says Todd Schoenberger, managing principal at The Blackbay Group. "We need to hear strategic planning right now."

We've just begun to hear from the Super Committee, and it looks like an unfortunate culmination of ideas that have been made public so far. Late last week the group's six Democrats released a series of spending cuts and new taxes on wealthier households totaling up to $3 trillion. On the other side of the aisle, the group's six Republicans released a package of deep spending cuts along with cuts to corporate and individual tax rates, totaling $2.2 trillion in deficit reduction.

A side-by-side comparison of the plans show we're in for a nasty battle within this committee, and just in time for the Holidays. But for once, Wall Street and Main Street could be on the same page, both having low expectations and just seeking a plan, something, anything.

"They're gonna do some cuts, but they're not gonna give us what we want to hear," Schoenberger says. "And what's gonna happen is all the rating agencies will downgrade us and that's gonna make our debt more expensive."

One thing is for sure, it'll be a November to remember. Will the October rally reverse itself in the month ahead? Let us know your thoughts in the comment section below.