There was once a time when a 2.9% gain in the S&P 500 in a single day (like yesterday) would be looked at as cause for jubilant celebration.  Now, it is simply looked at as cause for consternation. 

Can it last?  Will it last?  Faith in the affirmative answer has been shaken by the incessant volatility participants have had to endure throughout the summer because of incessant uncertainty over key issues.

Can Congress pass an increase in the debt ceiling?  Will Congress pass an increase in the debt ceiling?  Can the EU get its sovereign debt crisis under control?  Will the EU get its sovereign debt crisis under control? 

We know today that Congress passed an increase to the debt ceiling, but that it did so in the most acrimonious and discombobulated way possible. 

We know today that the EU is trying to get its sovereign debt crisis under control, but that it is doing so in the most discombobulating way possible.  There has been acrimony at times, yet it pales in comparison to the petulant partisanship that has infected Congress.

The market, therefore, is stuck right now in a boom/bust sentiment cycle.  There are days (like yesterday) when it seems as if things are headed in the right direction and there are days like Tuesday when it seems as if things are headed in the wrong direction.

Today, market participants will get their fill of cops running the traffic light and we suspect those cops will be playing a game of red light, green light.

ECB President Trichet took the helm this morning, spearheading a decision by the ECB to hold its key lending rate steady at 1.50%.  Red light (only because it was not a rate cut). 

Headlines indicate, though, that Mr. Trichet indicated in his press conference that he expects "moderate growth with substantial downside risks," and that he expects inflation to remain above 2.00% before moderating next year.  That outlook is a setup for a rate cut.  Green light.

Fed Chairman Bernanke is going to speak at 1:30 p.m. ET in Minneapolis on the economic outlook.  He is expected to rehash the views he shared in Jackson Hole. 

The market may be looking for more from Mr. Bernanke today, but it seems unlikely that the Fed Chairman would upstage the president, especially since he implied in Jackson Hole that he would prefer that fiscal policy do the heavy stimulus lifting at this point.  Red light (only because we don't expect anything new).

President Obama will unveil his jobs proposal at 7:00 p.m. ET tonight.  Reports indicate that it will include a combination of tax cuts and infrastructure spending as the main features and that the price for growth will be about $300 bln.  It will sound good and it will sound hopeful.  Green light.

Soon thereafter, we expect congressional leaders to shoot down the likelihood of passing any spending increases.  Red light.

So, there will be red lights and green lights today, the combination of which makes yellow -- the indication for caution.

And caution is the early approach today.  The S&P futures are 0.7% below fair value, having slipped to their morning lows in the wake of Mr. Trichet's comment that there are substantial downside risks and following another disappointing initial claims report.

Claims for the week ending September 3 jumped 2,000 to 414,000 (Briefing.com consensus 400,000).  There were no special circumstances behind the initial claims filings for the latest week, so the market sees this reading simply as another indication that job growth isn't going to be strong enough to bring down the unemployment rate in a meaningful way.

Continuing claims for the week ending August 27 fell 30,000 to 3.717 mln (Briefing.com consensus 3.700 mln).

On a brighter note, the U.S. trade deficit narrowed considerably in July, falling from $51.6 bln to $44.8 bln.  That narrowing was the byproduct of exports increasing by $6.2 bln and imports declining by $0.5 bln.

The strong growth in exports was led by industrial supplies and materials and capital goods, excluding autos.  Conversely, imports of industrial supplies and materials were down noticeably (-$2.462 bln), but that was driven primarily by a drop in crude oil imports (-$2.182 bln).

The July trade balance is going to factor favorably in economists' estimates for Q3 GDP.

Oh, and lest we forget... the NFL season kicks off tonight.  Green light.

--Patrick J. O'Hare, Briefing.com

Patrick J. O'Hare is Chief Market Analyst for Briefing Research, Briefing.com's institutional research service. To request a free trial, please email researchsales@briefing.com.