GM Kills $10 Million Facebook Ad Campaign Because It Didn't Work
JCPenney's Ron Johnson: 'Customers Don't Get Our Pricing Strategy'
Every morning I wake up bright and early and write a couple of posts about what is going to drive the market. Then I watch the news all day and find out whether or not any of the things I mentioned had any impact. Most of the time they do. But today I was surprised to glance over at my TV, tuned to CNBC, and see Fed Chairman Ben Bernanke speaking. His schedule at an international monetary conference in Washington wasn't even on my radar screen.
Then I held onto my seat, as did every trader on Wall Street. Would his words mean it was time to buy or sell? (It had to be one or the other.)
Sell, apparently, was the unanimous decision of investors. The Dow Jones industrial average ended the day down a punishing 199 points to 11,049. (Don't tell me we're going to cross back over the dreaded Dow 11,000 mark -- again!)
So why did stocks tank on hearing Bernanke's words -- a simple argument that inflation is still a concern even though the economy is starting to slow. That's not big news, guys, is it?
Ostensibly the sell-off is because Bernanke sounded much more likely to raise rates at the Fed's June 28-29th meeting than expected. But I think a few other factors are at work here.
First, I think investors freaked at signs of waffling on Bernanke's part. He was the one who got everyone excited earlier in the year that the Fed might "pause" in its series of rate hikes. Even more than fearing another rate hike, investors fear a Fed chief that won't give them clear signals of what he planned to do next (Greenspan was so helpful that way). One guy on CNBC just talked about how surprised he is to hear Bernanke be so hawkish on rates.
Second, investors really don't think the Fed needs to raise rates any more. Consumer spending, which makes up two-thirds of economic activity in this country, is already slowing, in good part due to the rise in rates (higher oil hasn't helped either). Bernanke talked today about businesses picking up the spending. Maybe so, but it won't be enough to make up for a faltering consumer. So now they have to worry that, not only could Bernanke be a waffler, but he might be wrong to boot.
Stephen Gallagher of Society General just said on CNBC, "I still think we won't see a rate hike in June, but I'm a little more nervous that I could be wrong."
In a Street.com story, Barry Hyman, a strategist with EKN Financial and someone whose opinion I really respect, said Bernanke's words of rising inflation and a slowing economy brought to mind the dreaded spectre of Stagflation -- "a death sentence for equities." He thinks the market will continue to slide on such news.
That's a hard call to make -- as someone who writes a morning stock preview each day knows well. But what I can say for sure is it is going to be a long two-and-a-half weeks until we finally see what the Fed does at its next meeting. Hold onto your seats.
Goldman Earnings Sink After Buffett Dividend
Johnson & Johnson's Income Falls 23%
Burberry Shares Leap on Sales Update
Reader Comments (Page 2 of 2)
6-06-2006 @ 5:10PM
Alan D. Salisbury said...
I am not good at words, but then Mr B isn't either. He should be fired now! Write the President. Write someone. Get rid of this sucker before he destroys us!
6-13-2006 @ 2:28PM
paul champion said...
Now every analyst in creation is talking about a correction since the nasdaq composite gave us a sell signal.Why didn't they talk about it 2 months ago when the index began a staight down hill plunge? Because they don't have the guts to be the first ones out there telling the truth meanwhile the clients of the firms they work for are getting their asses kicked in the market. This disaster began in the making when every damn IPO was headed to the moon no matter what business they were in over the past year... a sure sell signal. When Google's market cap exceeds IBM'S you know something is wrong....a sure sell signal. When interest rates bottomed out 18 months ago..they could not go any lower Right? and the market stagnated....a sure sell signal. Why don't the so called experts on Wall Street do their own shopping for groceries or whatever and see how inflation is murdering everyone? Inflation eats stocks for lunch and always has. Look back into the late 70's and early 80's and where was the Dow? 750 not 7500...750. I know I started investing then and noone in creation was even thinking about stocks...I got lucky. We had the flip side to this 18 months ago when every person in the universe was buying stocks... anything not having a clue what the companies were really about or the risk reward ratio of buying them in the first place WHY? Because they had never seen a down market Pe ratios of 10 were considered way up there. Some of the tech stocks nowadays have pe's over 100 which is discounting the millenium.
Well folks believe it or not the bear is now a bad ass perpetrator and he is here to stay.