Nervous markets from interest rate concerns

Stocks spent much of the day in the black, but the gains were modest. After Ben Bernanke's speech the Dow just barely slipped into the red, then returned to the black (really even) at the end of the day. Dow was up all of 1, advancers slightly ahead of decliners & NAZ fell 4. This was a sideways day when Colgate Palmolive (CL) was one of the worst performers, down 2.6%, in the S&P 500. Banks slipped, the Financial Index can't get a head of steam to take it above the low 190s.

S&P 500 FINANCIALS INDEX

Value 193.17

Change -3.16

% Change -1.6%

The Alerian MLP Index is at a new 2009 high (the 271 from 2 months ago was a bad number) after rising 2.62 to the 269s. The REIT index pulled back 3.58 following last week's big run up when it made an attempt to break into new high ground for 2009. Junk bond funds were higher, again at or near yearly highs & correspondingly low yields. The yield on the 10-year Treasury bond slipped 4 basis points to 3.45%.

Alerian MLP Index --- 3 months




Dow Jones REIT Index -- 3 months





Commodities had a very volatile day reacting to the weak dollar. Oil is solidly below the 75 floor, a bearish sign. Gold had been off 32 at its low but still ended with a serious loss. The weekly chart for GLD ETF shows what a tough time gold has had in the last 2 weeks.

CLF10.NYM

..Crude Oil Jan 10

..73.91

.. 1.56 ......(2.1%)

GCZ09.CMX

..Gold Dec 09

..1,154.20

.. 14.60 ......(1.3%)

GLD (ETF) --- 1 week





Federal Reserve Chairman Ben Bernanke warned in a lunchtime speech that it's too soon to know whether the economic recovery will last & again pledged to hold rates at extra-low levels for an "extended period." The FED chief's made it clear he thinks the economy will struggle even as it recovers from the recession. He said the economy confronts "formidable headwinds" -- including a weak job market, cautious consumers & tight credit. Those forces "seem likely to keep the pace of expansion moderate," he said. Under one FED forecast released last month, the jobless rate would remain stubbornly high next year -- ranging from 9.3-9.7%. The FED has warned that it could take 5 or 6 years for the job market to return to normal. He made it clear the FED plans to keep interest rats low for the foreseeable future.

•Bernanke Sees `Formidable Headwinds' for Economy on Tight Credit, Job Woes



Markets have been trading sideways for 3 weeks. Bernanke's comments about keeping interest rates low for some time were consistent with his prior statements. But there are doubts in the markets causing a modest sell off. My take is that low rates will be in force for another 12 months at a minimum, I believe his words. If rates remain low while the economy improves, that is very bullish for junk bond funds although it's difficult to see how much upside is left after their run this year. Their yields are 10-11%, not that much higher than they have been during the best of times in the last decade.

Dow Jones Index -- 3 months

Fed leaves rates, stocks generally up

The Federal Reserve bank left rates alone plus lower oil sent many stocks up. Dow was essentially even, but advancer led decliners 5-2 & NAZ put in a good showing, up 33. Dow was held back by United Tech (UTX), Boeing (BA) & American Express (AXP) with major declines. AXP is more troubling since they said they're having trouble collecting on their cards. Uh-oh! Dow was also held back by financials. They had been up nicely by midday, but pulled back to break even after digesting the FED announcement. The FED talked about higher energy limiting grow & resulting in inflation. Oil had a very wild day, ending down 2.41. Higher inventories won the day amidst all the confusing reports for oil.

Oracle (ORCL) came out with nice earnings after the close, up 32¢ & another 35¢ after hours, which should help tech stocks start off on the right foot tomorrow while the rest will try to assess the FED's words.

Markets up while awaiting Federal Reserve announcement

Markets are up before the Federal Reserve announcement. Dow is up 70, advancers ahead of decliners 5-2 & NAZ up 37. While everybody is waiting for results after the FED's meeting this PM, bulls have already starting buying. Banks, in particular, are seeing nice gains, typically up 2%. FED is expected to talk tough on inflation, not much to do now except bite fingernails. Oil was down 74¢ while waiting for the weekly inventory report expected to show lower supplies. Sadly record high oil prices are not reducing demand or bringing more supply online, the worst of all worlds (for oil)! Data on new home remains bleak. Sales of new home fell 2½% in May & prices also declined. In addition, orders for big-ticket goods were essentially even in May after declines in prior months. Strong demand for aircraft & computers offset widespread weakness in other groups.

General Mills (GIS) reported lower earnings in their Q4. EPS of 53¢ was down from last year & below forecasts, stock down 44¢. They also expect costs (i.e. wheat, corn, fuel) to rise 9% in FY2009. Sales should grow about 5% & the EPS forecast was kept in line with analysts expectations.