Blog : The Money Keeps Coming In

by Ed Zwirn on October 30th, 2013

The stock market got it right yesterday. After digesting a weak September retail sales report and news of a 0.1% fall in the producer price index, the wind was taken out of any remote argument that the U.S. Federal Reserve was going to announce any tapering off of its $85 billion monthly bond buying quantitative easing. The Dow Jones Industrial Average gained 111 points to close at a record 15,680.35 on Tuesday, with every other major index at or near record highs.

The fact that the immediate market reception to today's Fed policy announcement has so far been on the downside can therefore be blamed on the celebration being held ahead of the actual event. But today's Fed statement is cause for stock market celebration all the same.

The Fed governors this time around seem to have gone out of their way to avoid making headlines (maybe they decided to leave that to members of Congress). The bond buying and overall accommodative policy were kept intact, subject to the exact same rules as they were last time around. Significant in its absence was any adjustment in the central bank's assessment of economic conditions and the labor market.

The takeaway for penny stock investors is that the Federal Reserve is not likely to even start tapering off on quantitative easing until at least this spring, by which time Janet Yellen would presumably have gotten her feet wet. This means an essentially bullish market should prevail until well into next year.

And this especially holds true for penny stocks and other speculative investments. For one thing, the Fed stimulus is going a long way to counter the federal government retrenchment, and providing an influx of cash into the pockets of investors.

Multiplying this effect is the outlook for interest rates. Despite any wrinkles we may see in the months ahead, Fed policy virtually guarantees that rates will continue at or near their recent low levels, boosting the housing sector while driving investors who really want to score on their investments into riskier ventures.

Looking ahead, stocks will suffer from the predictable market bumps and grinds likely to be caused by the next round of government shutdown/debt limit political irresponsibility. And this is probably in the cards, unless our governing elite all get dosed with happy pills or something between now and February.

But these dips are all written into the calendar. While there is no substitute for analyzing a company's fundamentals, it also helps to get some sense of the direction and timing of the overall market. And the overall direction of the market, discounting blips, will continue to be up for as long as the money keeps coming in.