Markets Surge after Bernanke Clarification

Markets continued to surge last week continuing a 2 week strengthening from the down market we were in most of June. The first week of July started strong with an upbeat June jobs report coming out and we have seen the growth continue in the market last week following remarks from Federal Reserve Chairman Ben Bernanke that the central bank would continue its aggressive measures supporting the U.S. economy.

Bernanke seemed to be clarifying his comments from last month about tapering efforts starting in the near future. These new comments from the Fed support that they will not be pulling back it’s bond buying program until approximately 2015 or when unemployment reaches 6.5%. The market saw quite a bit of tightening after his June press conference and with these new comments, it’s back up. The S&P 500-stock index and the Dow Jones industrial average both hit record closing levels last Thursday. The S&P ended the day up 1.4 percent, at 1675.02, and the Dow rose 1.1 percent, to 15,460.92. Stock markets around the world also jumped Thursday following Bernanke’s remarks.

The reaction on Wall Street reinforced how sensitive investors have become to Bernanke’s remarks — and how dependent the markets may have become on the Fed’s policies. Minutes from the Fed’s June meeting released Wednesday showed the group was somewhat split on how to proceed. “Several members” thought a reduction in the Fed’s policy, known as quantitative easing, would “likely soon be warranted,” according to the minutes. These members cited an improving labor market as a reason it would now be safer for the Fed to pull back. Others, though, said they needed to see more evidence of an economy picking up steam before withdrawing the bond purchases. This back and forth on the Fed’s plans has left investors torn on what they might do next and on what time frame.

We’ve got a big week ahead as investors will be closely watching earnings to either confirm or deny the sustainability of the rally. It wouldn’t be unusual to see some consolidation after such a strong run, but if earnings reports remain positive, we might see the rally continue, though some volatility is likely. Investors will also be closely watching the Fed as Ben Bernanke testifies before the House Financial Services Committee and Senate Banking Committee on the state of the economy.

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