The markets are trading higher again but not on any sort of speculation as to the results of the elections. This again is simply a Dollar move. The U.S. Dollar is getting pounded again today, dropping to two week lows. The PowerShares DB US Dollar Index Bullish (NYSE:UUP) trades at $22.26, -0.15 (-0.67%). The weak Dollar is sending the markets sharply higher. The SPDR S&P 500 ETF (NYSE:SPY) is trading at $119.35, +0.82 (+0.69%). Notice the percentage drop on the Dollar is the equivalent to the percentage gain on the markets.
Common sense dictates a neutral to positive market on election day. The Democrats, the party in control right now have kept the markets higher with the help of the Federal Reserve into the elections to help their chances of maintaining control. Today is possibly the most important day to have the markets higher as swing voters may need just a little extra convincing. If the Dow Jones Industrial Average was lower by 300 points on election day, swing voters could fade to the Republicans. Obviously this would be a negative for the ruling party. Therefore the markets would be neutral to positive which is exactly where they currently sit.
Tomorrow the Federal Reserve will release their quantitative easing policy statement and amount. The market expects $500 to $750 billion. It could even be as high as $1 trillion. This announcement will be made at 2:15pm ET. This is the single biggest Federal Reserve announcement in recent history. The markets have rallied sharply higher over the last two months. They will need a better than expected result to continue to move higher. The Federal Reserve knows this and will try and oblige.
Do not make the mistake of thinking quantitative easing is anything other than the Federal Reserve being the buyer of last resort of U.S. debt. They have veiled it in terms of stimulus but a majority of it is the difference between the amount of debt other countries are willing to buy and what the U.S. needs to sell to keep the economy from collapse. China and other countries are now buying less U.S. debt. Other countries are finally saying NO, to throwing money down an empty hole with no signs of getting it back. Quantitative easing is simply the Federal Reserve buying the amount that these other countries will no longer buy. Thus the Federal Reserve steps in. When the markets realize the Federal Reserve is acting as a buyer of last resort panic may set in. Keep an eye on it.