Could stocks benefit as much without QE3?

by Michael Tarsala

Maybe stocks would benefit with or without the round of quantitative easing round that so many investors want.

Another round of QE is probably not in the cards, said Jeffrey Gundlach, CEO of Doubleline Capital, in a recent story in Advisor Perspectives.

Gundlach was quoted in recent days saying that the Fed is, “starting to realize that QE 3 is not really going to be effective.”

The upshot, he said in the story, is that he thinks investors in some markets may in turn lose confidence in the U.S. dollar if QE is not implemented this time around — even though QE seemed to spur dollar declines in the past.

I, for one, would think that it’s QE3 that could turn the dollar weaker, just because that’s happened in past years.

Yet if Gundlach is right, a weaker dollar in the absense of QE3 could positively affect stocks.

Either way — QE3 or no —  going long the euro relative to the dollar is the “favorite trade” right now of investment adviser and markets technician JC Parets.

He sees signs that sellers of the euro are getting tired of selling the currency, setting up a potential rally relative to the dollar.

A short-term hit to the dollar, he argues is a “huge positive” for risk assets in general.

My take is that those risk assets he talks about may include of U.S. multinational companies that are reporting weaker revenue from Europe in Q2 that is being exacerbated by currency effects.

With or without more stimulus, the S&P 500 has to get above the 1370 level and stay there to close the week to make technical progress.

We’ve just crossed above that mark in intraday trading on Wednesday; it will be important to remain there to close the week.

Photo by: Dennis Mojado