by Jiang Hanlu, Liu Fan
NEW YORK, Sept. 16 (Xinhua) -- U.S. stocks closed mostly higher Monday following sharp rallies in Asian and European bourses, as former U.S. Treasury Secretary Lawrence Summers' withdrawal from the race for Federal Reserve chairman stoked expectations that the Fed is not likely to take away its "punch bowl" very soon.
After Monday's rally, both the Dow Jones Industrial Average and the Standard & Poor's 500-stock Index are roughly one percent shy of their all-time closing highs set on Aug. 2. Meanwhile, the tech-heavy Nasdaq Composite Index, ending lower after a high opening, is still at its 13-year high.
Global markets experienced a broad-based rally on Summers' exit, with emerging markets leading the charge and European stocks closing at five-year highs.
A "SUMMERS RALLY"
"When the news broke out, Asia was the first to trade. Certainly, Asian and European markets welcome the news, and clearly here in the U.S.," Kenneth Polcari, director of New York Stock Exchange Floor Operations at O'Neil Securities, told Xinhua Monday.
With Summers' withdrawal, his main competitor Janet Yellen, currently the Fed's vice chairwoman, becomes the front runner for the top job.
Yellen, a well-known policy dove, is expected to continue Bernanke's easy monetary policies.
"I think there is a sense of relief because there has been so much controversy over him (Summers) as a potential nominee and as well as the other nominees," Polcari said. "So you could say it is either a 'Summers rally' or even a 'Yellen rally,'" he added.
Mark Newton, chief technical analyst at Greywolf Execution Partners Inc., said: "With somebody like Yellen, she is much more pro-growth. She is very similar to Bernanke, and actually more pro-growth than Bernanke is."
It is unlikely to see a rapid reduction in tapering or any sort of normalization where interest rate would hike in the near future under Yellen's tenure at least, Newton told Xinhua.
A SHORT-LIVED RALLY
However, Newton believes the "Summers rally" tends to be "short-lived," especially with uncertainties over the upcoming Fed policy meeting.
The meeting, scheduled for Tuesday and Wednesday, was widely anticipated and closely watched by investors, as most economists expected the central bank to announce for the first time the taper of its monetary stimulus.
"A lot of my own proprietary studies suggested that this week in particular should be important for the market. And I think the fact that we are rallying into the Fed meeting could create at least a short-term top in stock sometime over the next five to seven trading days. So I think it won't be sustainable," Newton said.
Newton said three reasons make the rally "short-lived." Firstly, the market is in a short-term overbought condition technically. Secondly, weekly momentum is still very much negative. He said the pull back of the U.S. stock market from early August was much stronger than the current rally and had a negative effect on a lot of momentum.
Thirdly, sentiment has become extremely bullish over the last few weeks, with fear gauges retreating over the last 10 trading days. "It's a little bit of concern when you see extreme amounts of complacency and a lack of put buying ahead of a major, major Fed meeting," he said.
Newton believes there is only one circumstance the market would be intact of a rally, that is if the Fed tapers 10 billion dollars to 15 billion dollars. "If they don't do anything or if they do more than expected, both of those have the potential of being a bearish factor to the market because it's not anticipated," he noted.
Echoing Newton's view, Polcari noted that major U.S. stock indices faded somewhat heading into Monday afternoon because there are still many concerns that are "holding the market in check," including the upcoming debt ceiling debate in Washington, Fed's possible tapering, weak economic data and Syria.