Fed Chairman Bernanke stole the headlines for most of Friday, but it wasn't long before Hurricane Irene stole his thunder -- literally and figuratively.  The good news is that it appears the equity market is no worse for the wear after both events.  In fact, it looks much better than it did at this time last Friday.

Following a 1.5% gain on Friday, the S&P 500 is indicated to open approximately 1.3% higher this morning.

The basic gist of things is that Bernanke's speech at the Jackson Hole Symposium and the footprint left by Irene on the eastern seaboard were both better than feared.

With respect to Mr. Bernanke, he did not provide a clear indication that further asset purchases are in the offing, but importantly for the market, he did not provide a clear indication that they weren't either. 

One acknowledgment the Fed chairman made that jumped off the page for many readers of his speech is that the September FOMC meeting will now be two days (Sept. 20-21) instead of one to "allow a fuller discussion" and that the committee will continue to consider the relative merits and costs of using the tools at the Fed's disposal.

Some pundits are clinging to that acknowledgment as a sign that QE3, or some form of monetary stimulus, is going to be announced at the September meeting.

Maybe.  Maybe not.

A lot depends on what happens in the interim with respect to the economy and the financial markets. In this environment, it is a working conclusion that the Fed will act if necessary. That could mean at the next FOMC meeting; it could mean next week if financial markets seize up on account of a bailout blowup in Europe; or it could mean nothing for a long time.

The impression we got from Friday's speech is that Mr. Bernanke is trying to transfer the stimulus onus to Congress and fiscal policy.  The Fed will act if it has to, but it would prefer Congress take the proper fiscal path so it does not have to. That is no sure bet at this juncture, which is why it is not a sure bet that QE3, or some form of additional monetary stimulus, is a non-possibility.

Either way, our view is this:  monetary policy is supportive for the equity market and we do not need QE3 for it to be considered so.

In terms of Irene, she did what hurricanes do.  She brought high winds, flooding, and, sadly, contributed to at least 21 deaths across eight states.  She left travelers stranded and knocked out power to millions.  What she did not do is wreak total havoc on New York City, which is dealing with commuting inconveniences and clean-up issues, but is still open for business today.

The financial markets are at the heart of that business and they are transacting per usual, albeit with fewer participants.

As noted above, there is a positive bias in the futures market.  Aside from the Bernanke/Irene relief bid, reports of an influential bank merger in Greece between EFG Eurobank and Alpha Bank, gains in foreign equity markets, and a reassuring Personal Income and Spending report for July are also acting as underpinning influences.

This will be a very busy week for economic reporting, so there is apt to be a lot of QE3 or no QE3 connections drawn that could continue to fuel volatile trading activity.

The income and spending data would fall into the "no QE3" category.  Personal income rose 0.3% in July (Briefing.com consensus +0.4%) while personal spending increased 0.8% (Briefing.com consensus +0.5%) and real PCE jumped 0.5%.  In addition, there were slight upward revisions to income and spending data for June.

Core PCE, which is the Fed's preferred inflation gauge, was up 0.2%.  Core PCE is up 1.6% from a year ago, which is within the Fed's central tendency projection of 1.5-1.8% for 2011.

Pending home sales for June (Briefing.com consensus -1.4%; prior +2.4%) will follow at 10:00 a.m. ET.  The remainder of the week will be accented by reports on home prices, consumer confidence, Chicago PMI, the ADP Employment Change, initial claims, productivity, the ISM Index, auto sales, construction spending, and nonfarm payrolls for August.

--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.