The Federal Open Market Committee () statement yesterday was very “matter-of-fact” that the FOMC voted 9 to 3 to keep key unchanged. During his press conference, Fed Chairman Kevin Warsh said he wanted a good family fight over interest rates, and he said that that was exactly what he got. Since Warsh is in the midst of remaking the Fed’s economic reports from the bottom up via five task forces, he stressed that these changes are underway to make the Fed more responsive.
Interestingly, the stock market staged an impressive intraday reversal on Wednesday when Fed Chairman Warsh was conducting his press conference, but then the stock market was hit with relentless selling pressure in the last hour in what can be best described as “capitulation.” An impressive rebound ensued on Thursday, in the wake of Microsoft’s () better-than-expected results, which is helping lead the overall stock market higher.
The next test for the stock market is whether the lows on Wednesday have to be “retested.” It is my experience that capitulation selling typically does not have to be retested. The good news is the stock market is now increasingly focused on earnings, so that is a positive development for our fundamentally superior stocks.
It is amazing how earnings momentum is still accelerating for the . When the second quarter earnings announcement season is over, the S&P 500 will post over 30% overall earnings growth, aided by big companies like Google (), which just announced 294% earnings growth. Believe it or not, the analyst community is forecasting even stronger earnings growth in the third quarter, so this year is shaping up to be phenomenal and finish on a strong note, so I am expecting my fundamentally superior stocks to soar another 40% to 50% this year.