Thank You Ben Bernanke!

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Stocks closed out last week considerably higher as investors were pleased with Federal Reserve Chairman Ben Bernanke’s comments as to our struggling economy and his decision to leave the door open for additional accommodation measures. Stocks pared losses throughout last Friday and turned higher for much of the afternoon session. At one point, the Dow was up 177 points before trimming those gains in the final trading hour. And even though most investors were hoping that Mr. Bernanke would announce a full fledged third bond-buying program, commonly known as quantitative easing, investors took solace in the fact that he has now signaled he’s ready to provide further support to our persistently weak economy. Ben was somewhat stern in putting some of the blame on Congress for the nation’s economic woes, and urged fiscal policy makers in Washington to take the appropriate measures to jump start the economy.

With continued volatility last week, all of the major domestic indexes ended the week sharply higher. The Dow’s 4.3% gain on the week came after a 15% decline over the previous four weeks. The Standard & Poor’s 500-stock index gained 53 points on the week or 4.7%, and now sits at a level of 1,177, led higher by technology and consumer discretionary stocks. Meanwhile the technology-heavy Nasdaq Composite surged by 138 points, or 5.9%, to a mark of 2,480. And thankfully the smaller-cap stocks, as represented by the Russell 2000, which have been the biggest laggards on the year, popped by 40 points, or 6.2%, and now sits at the 692 level. All in all, it was the stock market’s second-best week of 2011!

While the overall stock market has now rebounded some 5.1% from its August 8th low, the big question now becomes, “Will the Standard & Poor’s 500’s August 8 low of 1,119 remain the market’s low-water mark for the year?” While most of the economic news has been weak at best, you wouldn’t think that consumer sentiment could get much worse. As it currently stands, the S&P’s dividend yield recently matched that of U.S. 10-year Treasuries, when the norm since 1981 has been for Treasuries to pay a yield some 2.7 times richer, according to Ned Davis Research. One would hope that these rock-bottom interest rate levels will encourage refinancing, and that our overall debt-service burdens will shrink. In addition, gasoline prices have fallen 9% over the past couple of weeks, despite the summer driving season. Hopefully the stock market will continue higher even in our present ‘recession of confidence’ state, and without further monetary coddling from the Federal Reserve. Still, stocks are down roughly 13 percent in a month month, and few expect the current market turmoil to dissipate anytime soon.

Treasury securities continued to muddle around record low yields thanks to Ben Bernanke’s speech from Jackson Hole, Wyoming, this past Friday. His Federal Open Market Committee meeting will now be expanded to two days, on September 20 – 21, in order to give a full airing of all the issues that Bernanke recently raised. Some market pundits inferred that by adding an additional day to the confab raises the odds that the panel will take some action. That tidbit was partially responsible to the turnaround in the stock market last Friday, from an initial loss in reaction to a lack of new initiatives in Bernanke’s speech, to a +1% gain in the major averages. As it now stands, the yield on the benchmark Treasury 10-year note rose to 2.190% this past Friday, as demand for the safety of government debt eased somewhat.

Looking ahead to economic news this week, the biggest item on the calendar will be the nonfarm payroll report on Friday. The unemployment rate is expected to hold steady at the 9.1% level, and the consensus estimate is for August nonfarm jobs to rise by 75,000 compared to 117,000 last month. In addition, the Federal Open Market Committee will release its minutes from their August 9th meeting on Tuesday, where three Fed presidents dissented on the fed-funds target-rate language. The final week of August also has several retailers reporting their August sales stats along with several corporations reporting their earnings results.

With just three trading days left in the month of August, most investors will be more than happy to see this month go in the history books. It’s been a rough and tumble month for equity investors to say the least, and hopefully the month of September will be kinder. However, we wouldn’t hold our breath, especially if history repeats itself. Historically the months of September/October are some of the weakest on record for the overall stock market.Thus it looks like we’ll be ‘battening down the hatches’ as we navigate through this treacherous time of year.

All of us at Money Management Services, Inc. wish you and your family an enjoyable Labor Day weekend, and we’ll be back with another report next Tuesday. Keep in mind that both the stock and bond exchanges will be closed this forthcoming Monday for the major holiday event.

Sources:Barron’s, Wall Street Journal, Associated Press, Econoday, Gorilla Trading, Dow Jones & Company, Briefing.com

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