Cited: Reuters
If Federal Reserve Chairman Ben Bernanke gives a reassuring assessment of the recovery and retail earnings that shows an improvement, Wall Street could keep going up after its best week this year. The chairman seems to believe that the retailers hold the keys for stocks.
Investors are eager to hear more on the thinking behind the Fed’s surprise move to raise its discount rate, especially because the Fed’s loose monetary policy has provided a crucial spur to equities’ advance since their March 2009 bottom.
While the rate hike suggested that the Fed now considers the financial sector to have healed sufficiently to warrant taking back extraordinary liquidity, the hike also sparked unease about a possible broader removal of economic stimuli.
Bernanke’s semiannual testimony on monetary policy before congressional panels takes on an even more important dimension as investors look for clarity on the Fed’s intentions and how Bernanke sees the recovery progressing.
“We will be watching for more confirmation of which track the Fed is on,” said John Praveen, chief investment strategist at Prudential International Investments Advisers LLC in Newark, New Jersey. “We will be looking for more color on the timing of the (exit strategy).”
The Fed has said its benchmark fed funds rate would remain exceptionally low for an extended period to sustain the recovery, but there has been little light on the timeline of its exit strategy and what risks might that entail, more so with a high U.S. unemployment rate still a big menace.
“Is (the rate hike) a reflection of its confidence in the stabilization of markets and the economic recovery, or are they very worried about inflation and therefore are hiking rates?” added Praveen.
RETAILERS IN THE BULL’S-EYE
Earnings from major retailers, including Home Depot Inc, Target Corp and Macy’s Inc will also be in the spotlight, along with key economic data, including February consumer sentiment and January new home sales.
Luxury homebuilder Toll Brothers gold miner Newmont Mining Corp and grocer Safeway Inc are on the earnings scoreboard.
With consumer spending accounting for about two-thirds of U.S. economic activity, any indication that consumers are again spending should go a long way in reassuring investors about the outlook for profits and add to the prevailing optimism that has underpinned the stock market’s rebound from the recent selloff.
Of the 422 S&P 500 companies that have reported earnings as of Friday, 72% have beaten analyst expectations, 10% have matched estimates and 18% have missed estimates, according to Thomson Reuters data.
That is well above the 61% that have beaten estimates in a typical quarter since Thomson Reuters began tracking data in 1994.
BIG BOUNCE
Optimism about the recovery has helped the benchmark S&P 500 .SPX trim its losses since its January 19 peak to 3.6% decline through Friday. The index fell by as much as 8% through February 8.
Investors have been scouring for beaten-down shares in growth-oriented stocks like commodities, technology and consumer discretionary sectors in the market’s latest rebound, helping the S&P 500 score its biggest weekly advance since November on Friday.
On the week, the S&P 500 rose 3.1%, the Nasdaq .IXIC gained 2.8% and Dow Jones industrial average .DJI climbed 3%.
“The reason stocks begin to work from here is that the data that came out of the fourth quarter was generally positive, visibility is improving and now we are starting to see that delinquencies are stabilizing,” said Thomas Lee, chief U.S. equity strategist at J.P. Morgan in New York.
“The macro trends are all moving in the right direction.”
Bernanke is scheduled to testify before the U.S. House of Representatives Financial Services Committee and he is due to testify before the U.S. Senate Banking Committee as well.
Investors’ fears about Greece’s fiscal deficit problems and concerns about the stability of the euro could affect the direction of the stock market depending on the progress the European Union makes to allay the investors in addition to Bernanke’s comments.
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My Take: Well, Wall Street seems to control the finances of this country; I hope they know what they’re talking about. People in this country are so frightened about money lately, and they just might make themselves sick. Here in Phoenix, they are actually proposing a tax on daycare centers licensing, which is not going to be very helpful people who aren’t making much to begin with. They even had a protest about it at the capitol building.
People have a hard enough time finding cheap daycare as it is. Have you ever done a daycare search? There are tons of them to charge an arm and leg and now they want a tax licensing. It is easier to find tablecloths than is to find a daycare you can afford. That is unless you’re looking for quality table cloth then it might just be as difficult.
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