Will the Fed Channel Chubby Checker?

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tdp2664 InvestorPlace Can the Federal Reserve save the economy — and the stock market — by “doing the twist”? Monday’s early rally for the Dow showed hope still is bubbling among some investors, even if it might not quite spring eternal. (The bounce largely faded by the close.) Today, though, the nation’s central bank will announce the results of its two-day policy meeting in Washington — and the “hopers” are looking for Chairman Ben Bernanke to spin a dusty vinyl platter from the Federal Reserve’s oldies collection. Back in the early 1960s, in an effort to stimulate a sluggish economy, the Fed — working hand-in-glove with the Kennedy administration’s Treasury Department — instituted Operation Twist. This maneuver called for the central bank to buy long-term Treasury bonds and simultaneously sell government paper with shorter maturities. The goal: Drive down long-term borrowing costs for homebuyers and businesses. Let’s assume the Fed decides to “twist” the yield curve again. Will Chubby Checker’s old tune get the U.S. economy jiving again and help us steer clear of a double-dip recession? Maybe, in the same sense that each of Bernanke’s two previous quantitative-easing programs gave business activity a brief, artificial boost. But let’s face it. By almost any measure (except corporate profits), the economic recovery since 2009 has been one of the weakest on record. While businesses have done a fantastic job of adapting to survive this adverse climate, the employment outlook continues to be dismal. As long as that remains true, stocks will be on shaky ground. Dazzling rallies will give way to sudden, shocking plunges (like that of early August). The current run-up, dating from the Aug. 8 closing low at 1,119 on the S&P 500, has reached a tender stage. Twice in recent sessions (Friday and again Monday), the S&P banged into overhead resistance at 1,220. This is worrisome, because in late August and early September, the S&P was able to climb 10 points higher (to 1,230) before hitting a short-term ceiling. The Fed will need to pull a blue-ribbon bunny out of the hat today. Otherwise, we’ll probably head back down for a test of the August index lows during the first half of October.