Blog : Is Dow 15K the New Floor?

by Ed Zwirn on September 11th, 2013

What a difference a few days make. With war clouds in Syria at least temporarily clearing following the president's speech last night, there is a chance that the U.S. can get back to the business of making money.

With the postponement of voting in Congress over whether to authorize a military strike against Syria, the war threat has been effectively taken off the table, at least for a few weeks. This leaves open the possibility that Congress will actually be able to resolve budget and debt differences and avoid another self-inflicted wound to the U.S. economy.

This perception proved to be a happy one for many investors today, with the Dow Jones Industrial Average gaining nearly 0.9% on the day to close at 15,326.60, its highest close since Aug. 14. The gains, however, were not evenly distributed. The broader NASDAQ closed today's session off 0.1%, while the penny stock laden Russell 2000 lost 0.4%.

But, despite the uneven results seen today, the day belonged to the bulls. Exactly one week remains before the Federal Reserve's policy announcement, and penny stock investors ought to be if anything less convinced than they had been a week ago that the central bank will use the announcement to cut back on its $85 billion monthly bond buying program.

Following last week's release of a jobs report casting major doubt on prospects for anything but the minute tinkering with this expansive Fed policy, the consensus predicting serious tapering has evaporated as it becomes obvious that the extent of jobs growth seen over the past several months has been nothing near the solid labor market growth needed to justify a change in Fed policy.

Penny stock investors looking for further clues on other key components of Fed decision making should get them this week and next, with the release Friday of the August producer price index and the Sept. 17 CPI update.

According to the current market consensus, the increase in producer prices is expected to weigh in at 0.2% for August, following July's flat reading. The more important "core" figure, which excludes food and energy, is expected to show a 0.1% rise, the same as the prior month.

Looking a bit farther ahead, Sept. 17's consumer price index will represent the last major chance that economic data has to impact the Sept. 18 Fed announcement and will be closely watched for any spike or drop from July's 0.2% increase.