Friday, August 27, 2010

Markets move higher after hearing from Ben Bernanke

Buyers returned after absorbing the discouraging GDP figures. Maybe the potential offer of help from the FED encouraged them. Dow gained 93, advancers ahead of decliners 3-1 & NAZ was up 15. Kind words from the FED gave bank stocks a lift, bringing the Financial Index further above its recent lows.


Value 181.96 One-Year Chart for S&P 500 FINANCIALS INDEX (S5FINL:IND)
Change 1.48 (0.8%)

The Alerian MLP Index was up a fraction going over 320 while the REIT index added a fraction in the 199s. Junk bond funds were higher & the VIX fell 1 to the 26s but still above the low 20s where it has been in early Aug. There was selling in Treasuries, the yield on the 10 year Treasury bond rose almost 10 basis points to 2.59%.

Treasury Securities

U.S. 3-month
U.S. 2-year
U.S. 10-year

Alerian MLP Index --- 2 weeks

Dow Jones REIT Index --- 2 weeks

VIX --- 2 weeks

10-Year Treasury Yld Index --- 2 weeks

Oil is still in its trading range of the low 70s & gold hardly budged.

CLV10.NYM...Crude Oil Oct 10...72.82 ...Down 0.54

GCQ10.CMX...Gold Aug 10...1,236.00 T...Up 0.60

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Ben S Bernanke, chairman of the U.S. Federal Reserve

Ben Bernanke, chairman of the FED
Photo: Bloomberg

Ben Bernanke said that the Federal Reserve (FED) will consider making another large-scale purchase of securities if the slowing economy were to deteriorate significantly & signs of deflation were to flare. These remarks came just after the gov said the economy slowed sharply in Q2 to a 1.6% pace. Bernanke described the economic outlook as "inherently uncertain" and said the economy "remains vulnerable to unexpected developments." He raised the prospect of another Fed purchase of securities, most likely gov debt or mortgage securities, to drive down rates on mortgages & other debt to spur more spending by Americans. The other 2 options laid out are:

** Providing more information in the Fed's post-meeting policy statements about how long FED policymakers would continue to keep rates at record lows. For more than a year, the FED has been pledging to hold rates at ultra-low levels for an "extended period."

** Cutting to zero the interest the FED pays for banks to keep money parked at the FED, now 0.25%.

Bernanke Says Fed Will Do `All It Can' to Ensure U.S. Recovery

GDP in the US grew at a 1.6% annual rate in Q2, according to the Commerce Dept, down from an initial estimate of 2.4% last month & much slower than the Q1 pace of 3.7%. As a result, many expect the economy will grow at a similarly weak pace for the rest of this year. This rate is very disappointing relative to a typical business cycle. The widening trade deficit subtracted nearly 3.4% from Q2 growth, the largest hit from a trade imbalance since 1947. The economy has grown for 4 straight qtrs, but that growth has averaged only 2.9%, a very weak pace after a steep recession. The economy needs to expand at about 3% just to keep the unemployment rate from rising. Consumers spent a bit more in Q2 than previously calculated, rising at a 2% annual rate, above the 1.6% estimated last month & slightly higher than the 1.9% rate in Q1. The revised estimate was largely due to higher electricity & natural gas usage. Macro economic news continues discouraging.

U.S. Economy Grew a Revised 1.6% in Second Quarter

Volume remains low so price swing don't mean very much. But the drearier news about GDP in Q2 has to give everybody a reason to pause & reflect on its meaning. Unemployment is the key metric in this recovery & it's not improving anytime soon. Dow (reflecting most markets) keeps sloshing in its yearly low region.

Dow Jones Industrials --- 2 weeks

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