After four straight down days and a decline that was beginning to scare people, a bounce for the stock market was in order. You know; a rebound that makes investors believe that no matter how bad things get or how negative the outlook is, they may have seen the worst. So, after a decline of -5.7%, a rebound was to be expected. And after some decent economic news out of Germany, an encouraging comment from the ECB, and a couple of M&A deals, a bounce is exactly what we got yesterday morning.
But after the Dow had gained a quick 80 points and was encountering what chartists like to call resistance, traders may have been looking for a little something more in terms of a catalyst. After all, given the miserable macro backdrop that has "suddenly" developed and the lack of evidence available to refute the idea that an economic slowdown is at hand, traders may have needed some sort of a reason to continue clicking the buy button.
Regardless of how unrealistic the expectations were, it appears that the "little something" traders were looking for Tuesday afternoon involved one Ben Bernanke hinting that he and his FOMC friends wouldn't abandon them should the economy take a turn for the worse. A wink, a nod, or better yet; a veiled bit of Fedspeak to let those able to interpret the Bernanke language know that more bond buying would surely show up - but only if needed, of course.
I guess this expectation wasn't totally outlandish as Bernanke has in the past used phrases akin to "the Fed stands ready to do whatever it takes to keep the economy from entering a deflationary spiral." As such, it might have made sense to have been looking for Bernanke to provide assurances that everything will be peachy keen going forward.
But instead of a warm and fuzzy love fest, the Fed Chairman called it as he saw it - and the bottom line is the picture he painted wasn't terribly attractive. There was no hint that the Fed would continue to pump fuel directly into the economy's engine and no assurances that the Fed has any additional tricks up its sleeve.
No, Mr. Bernanke simply gave a rather somber overview of the situation. He said that the current recovery is subpar, uneven, and likely to stay that way. He said that the jobs picture is "particularly concerning" and not normal. He said that the consumer is going to need to help out at some point but that given the jobs and housing pictures, growth in the consumer spending arena isn't likely to be robust. And he said that inflation isn't really a problem. Oh, and he also said that the "accommodative monetary policy" is still needed and will likely be around for "an extended period."
So, what's the takeaway here? Does the fact that traders didn't get the hint of QE3 they were looking for mean that we won't get the bounce the bulls traditionally get right about now? While this may explain the mini temper tantrum that traders threw during the last hour - during which time the S&P gave up about 1% - cooler heads may prevail in the near term. You see, we're of the mind that the economy is NOT in dire shape. Remember, GDP IS growing, just not as fast as everyone would like. Jobs ARE being added. But again, just not at the pace to make people sit up and take notice.
Yes, there is the risk that without the hint of more help from the Fed, traders may start to wonder where the growth is going to come from in the next six to twelve months. And traders may also start to wonder how long it will be before job growth starts to accelerate or if a soft patch has been factored into the current earnings estimates (which were boosted again on Monday). But I digress. The question at hand is if we are going to get a bounce without a hint of help from Bernanke & Co. So, without further ado, let's see how things are looking today...
Source: Top Stock Portfolios
