Why Didn’t Operation Twist Spark an S&P Rally?

Wednesday, 21 Sep 2011 | 5:35 PM ET

Doesn’t seem like Helicopter Ben can spark enthusiasm in the market the way he once could.

Despite Bernanke’s plan to sell $400 billion in shorter-term securities to buy longer-term holdings - a plan called Operation Twist on the Street - the S&P traded lower on Wednesday.

The weakness is somewhat surprising considering 'Operation Twist' is expected to drive down Treasury yields further – with the ripple across the economy resulting in lower rates. In turn, the move could trigger increased mortgage lending as well as more business loans.

Shouldn't the market have rallied?

Fed's Operation Twist Drags on Markets
Dissecting the day's major business news, including; "Operation Twist", and Moody's downgrade of BAC & WFC, with the Fast Money traders.

Instant Insights with the Fast Money traders

Trader Stephen Weiss thinks the Street interpreted the latest Fed move very differently from what we've written above. He says pros see it as a sign that the central bank expects the economy to grow even weaker.

And he says other headlines amplify the same view. Walter Energy said it will miss its third quarter earnings target and Alpha Natural Resources pared its coal shipment targets for the year. All told, that’s negative, Weiss says.

Karen Finerman adds that the price of money isn’t the problem in the market, “What the Fed did, doesn’t help anything,” she muses.

Top analyst Dick Bove goes a step further. He says, “The Fed harmed the economy by flattening the yield curve. That takes the profitability out of lending.”

In fact, none of the traders thinks the selling is over.

”Transports were down on Wednesday, Asia is trading at levels we haven’t seen since July 2009 and Freeport McMoRan is trading at 52-week lows,” says trader Guy Adami. He thinks all three catalysts are leading indicators.

”1225 is probably the top of the range – I don’t think we’ve seen the lows for the year – Wednesday is an important day.”

Even the usually bullish Joe Terranova is skeptical that the S&P has a lot more upside. “The S&P just can’t rally with the stronger dollar,” Adami says.

If you're wondering why Bernanke didn't do something more aggressive, trader Steve Cortes thinks his hands are tied. Cortes to points out that political opposition is growing to further Fed action. “The bar for aggressive QE is high,” he says.

Top Congressional Republicans Tuesday took the unusual step of telling the Federal Reserve to refrain from further "intervention'' in the economy on the eve of a policy decision by the U.S. central bank.

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