Portfolio managers returning from their summer holidays have apparently liked what they’ve heard from the central banks. Although total volume remains modest, U.S. stock indexes have hit new highs. The S&P 500 finally busted out of its 3-month-long bullish rising channel.

The Fed has enacted QE3 with an indefinite time deadline. Europe continues to make progress after Draghi’s bond buying announcement and Chancellor Merkel’s reaffirmation. The market has noticed and responded with a strong upward movement in each of the past two weeks.  

Despite last Friday’s disappointing jobs report, stocks are staying strong. The S&P 500 hit yet another new high on Wednesday—its highest level since January 2008, while the Nasdaq is at a level not seen since toppling from its “irrational exuberance” days of late-2000 as the Internet bubble was bursting. The ECB seems to be getting a workable plan together to support the eurozone banking system and sovereign debt.

Last week’s events moved the market in a positive direction.  ECB President Draghi did indeed get approval to implement his sterilized bonds to assist weaker European nations from defaulting on their sovereign debt.

Volume remains low as the bulls continue to await Wall Street’s return from late summer vacations...and a firm plan from the central banks. (I think many portfolio managers must be spending their days in the stands at the U.S. Open tennis tournament.) The S&P 500 closed out August with a third straight monthly gain.

Sabrient's Director and Chief Market Strategist, David Brown, was interviewed this morning on Brian Sullivan's Street Insider segment on CNBC. They discussed Europe's interest rate risk, Draghi's intentions at tomorrow's ECB meeting, and how that will affect investors. Watch the the clip here.

Our opinion is that current equity prices are reasonable, if not a tad on the cheap side, unless of course none of the above action items turn out positive for investors. The U.S. economy could probably survive without QE3; however, Draghi’s task is of particular concern. The amount of European sovereign debt held by banks could be disastrous if Greece, Spain, and Italy collapse. A decline in the euro would lead to downward EPS revisions in U.S. equities and place them on an overvalued shelf.

As we head into the homestretch of summer and the Labor Day holiday weekend, investors are anxious to see if next week brings elevated volume and the reinforcements to help the bulls break out. However, there’s no doubt that the bears are lurking in the wings to drive stocks down hard, given the right scenario.

All the right people will be at Jackson Hole late this week conversing about economic stimuli.  Chairman Bernanke will speak Friday, and Mr. Draghi will be on a panel Saturday morning.  But if I were a betting man, and I am, I would bet against any major announcements at the conference.  Most feel that Bernanke will await the various economic releases in September before making a final decision, and Mr.

Volume has elevated somewhat this week, as Wednesday saw more trading volume than we have seen since the beginning of the month—likely due to the release of the FOMC minutes (both in anticipation and aftermath). In any case, equity holders have been loath to sell. Mild intraday weakness continues to be met with buying.