Wall Street may be buying into Bernanke

Stocks rise for a fourth straight day in a rally that seems to have strength. The Street is making a bet the Fed won't raise rates too fast.

By Charley Blaine Jul 9, 2013 6:39PM
It's getting pretty clear that traders are going to push the major averages to new highs, and probably soon.

And here's the reason: Many investors may be buying the Federal Reserve's insistence that it isn't planning to raise interest rates soon. What happens after that is anyone's guess.

So, stocks finished higher Tuesday for a fourth day in a row. The Nasdaq Composite Index ($COMPX) hit a new 52-week closing high, finishing at 3,504, up 19 points on the day. It's still off about 0.8% from its intraday peak of 3,532.04.

The Dow Jones industrials ($INDU) meanwhile, ended the day 109 points below its May 28 closing high of 15,409, and the Standard & Poor's 500 Index ($INX) is within 17 points of its closing peak of 1,669.16, set on May 22.

In addition to the Nasdaq's gain -- its ninth in the last 10 sessions -- the Dow finished up 76 points to 15,300. The S&P 500 rose 12 points to 1,652. The Nasdaq-100 Index ($NDX), which tracks the largest Nasdaq stocks, added 18 points to 2,984.

The Russell 2000 Index added nine points to 1,018. That was a new closing high.

The rally came as the dollar shot higher against major currencies, and oil (-CL) and gold (-GC) both saw moderate gains.

Home builders were the day's leaders, D.R. Horton (DHI), Lennar (LEN) and Pulte Group (PHM) were among the top four S&P 500 stocks, rising more than 5%. Netflix (NFLX) was the second-best S&P 500 performer, rising $14.28 to $247.38.

Critically, interest rates were mostly lower.

The 10-year Treasury yield jumped from 1.63% to 2.72% on July 5. On Tuesday, the yield was at 2.63% --  not a big decline since Friday, but it has come down for two days in a row, despite the good cheer from Friday's jobs report.

Fed Chairman Ben Bernanke sent shock waves across markets in late May and later when he said the central bank might start slowing its bond-buying program in the fall and halt it perhaps in 2015.

Traders started to sell off bonds in a big way; the iShares Barclays 20+ Year Treasury (TLT) exchange-traded fund is off 13.4% since May 1.  Stocks moved lower in lockstep. Stocks, like bonds, lose value when interest rates rise.

What seems to be happening is investors are getting used to the idea the Fed will be slowing down (or tapering, as Bernanke says) its purchases some time this fall and will stop bond purchases late in 2014 or 2015. Getting used to the idea also includes an assumption that rates will rise gradually.

That would be much like when rates moved slowly higher after June 2003.  The question for  Bernanke, the Fed and whoever succeeds Bernanke as Fed chairman is how high should they boost rates. A good guess is not as high as it did in late 2006, when it set its target on its federal funds rate at 5.25%. The target is now 0% to 0.25%.

Twenty-six of the 30 Dow stocks were higher, led by Caterpillar (CAT) and Cisco Systems (CSCO). IBM (IBM) was the laggard, thanks to a downgrade.

D.R. Horton led the S&P 500; 416 stocks in the index were higher.

Intuitive Surgical (ISRG) was the laggard, down $80.78 to $419.30 after saying second-quarter results won't be as good as expected. The maker of da Vinci surgical systems, which allows surgeons to remotely operate on patients, is forecasting revenues of $575 million; the Street had been looking for $630 million.

Intuitive Surgical was also the laggard among Nasdaq-100 stocks. Netflix was the leader. Seventy-seven Nasdaq-100 stocks were higher.

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41Comments
Jul 9, 2013 8:13PM
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Sorry Charley, the Street is betting that Bernanke won't raise rates at all, at least not for the next several years.  They're also counting on $85 billion a month and have signaled they won't settle for anything less.

Bernanke's current actions aren't based on any strategy.  He's stuck with no other viable options, lest he look like a complete and utter failure, and be forced to admit that his life's work has been one big exercise in futility, based on a faulty hypothesis and dripping with incompetence and incorrect assumptions based on theory that has been demonstrated to be wrong time and again.

Jul 9, 2013 8:58PM
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What an idiotic article! Wall Street WOULDN'T EXIST if Bernanke wasn't funding it. Who doesn't recall banks on the brink and Hank Paulsen waving blank sheets of paper in the air calling for T.A.R.P.? We died that day. Every month- $85 billion gets printed to cover the cost of Financial Tyranny suppressing America, while making GREED rich. There is no real job creation. No family sustaining wages. Since there isn't, the Housing Crisis keeps looping and our existence weakens with every month of control, manipulation and stagnation. We're watching our future go from free to indentured, just so organized inherited business platforms thrive on other people's genius, money and effort. I can only keep writing the truth. Others have to see this and rise to end it. Bernanke is a criminal, Wall Street is full of crooks and terrorists. Name ANY society ever in history that survived on finance and administration? Why would any want to? That's Hell... Free Enterprise was as good as it comes and gets. We lost that. EAT THE RICH. They had the real food, we got GMO'd.
Jul 9, 2013 9:45PM
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QUESTION OF THE DAY:  If food stamp distribution is at record highs, what would be the price of Walmart stock today if the store did not accept food stamps? 

 Seems to me without taxpayer funded government contracts there wouldn't be many businesses trading PERIOD! 

 

I hope you are now thinking about who  the real welfare queens are.   GEEZ!

Jul 10, 2013 1:33AM
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Anybody who believes helicopter ben's policies will work, is dumber than he is.

 

Let's see: Pumping $85,000,000,000 an MONTH into wall street, unemployment, [the REAL rate, NOT the **** government figures] at least 15%, more and more people going into poverty every day, inflation taking off like a rocket, and wall street thinks this is a GOOD thing?

 

When the crash does come [and it WILL, nothing can stop it now] it's going to make 1929 look like a tea party

Jul 9, 2013 8:27PM
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This article shows up how stupid and greedy Wall St is ... a pox on Wall St and the greedy
Jul 10, 2013 5:59AM
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Bernanke is a Keynesian.  He's also a narcissist.

Q:  What's worse than having a Keynesian in charge of our monetary policy?

A:  Having a narcissistic Keynesian in charge of our monetary policy.

Jul 10, 2013 2:11AM
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Readers, let's get one thing straight.  The real reason that the Federal Reserve Bank keeps the Federal Funds Rate at 0% is that the federal government cannot afford the interest payments on our near - $17 TRILLION NATIONAL DEBT unless interest rates are at rock bottom.

 

The bond investors are already TIRED of being paid rock bottom interest on Treasuries.  The part of the above article about 10 year bonds going down from 2.72% to 2.63% isn't that important.  You are hereby reminded that in 2012, the "10 year" was at 1.47% at one point!  Isn't Ben Bernanke concerned that despite his buying at least $40 billion of 30 year Treasury bonds per month that long term bond yields are still rising?

 

The interest payment at 2.63% is 1.8 times the interest payment at 1.47%.  Isn't the Treasury Dept. squirming already, albeit secretly?  How would the federal government like having the 10 year yield back up at 4.0%?

 

Thus, I think we can FORGET ABOUT TAPERING.  Bernanke's next move could be to buy 10 year Treasury bonds directly, in addition to all the 30 year bonds he is already buying.

 

And yet, why should bond investors accept the super-low yields that Bernanke wants to push on them?  Aren't the mainland Chinese backing away from Treasuries with all the American houses they are buying?

Jul 10, 2013 2:35AM
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Fact is, Uncle Ben's actions have worked for the Folks it was intended to help, the 1%. Big Banks have been allowed to borrow at super low Rates while they still charge almost everyone else, Loan Shark Rates. Major Corporations that have Huge Cash Balances are evening borrowing money to do Stock Buyback, case in point Apple, since borrowing cost are super low, for them at least. The result over the last few years, Record Profits and Record Cash on Hand for the Big Boys. The rest of us, we fight over the crumbs.

Wall Street isn't per se buying into Uncle Ben possible new stance as much as they are pivoting the Conversation to keep folks bullish and buying. Big Difference. While they try and sell to the Majority that everything is fine and dandy, they are cashing out in Record Numbers. I mean at the end of the day folks, just how large does anyone think the FEDS balance sheet can grow without imploding on itself. The FEDS have no choice but to taper in the future. It was only a matter of when, not if.

Jul 10, 2013 2:23AM
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Name calling isn't going to help anything. Constructive criticism might catch an ear and possibly create some movement. I can understand the anger though. No question the creativity of wall street was responsible for the financial depression of 08.The Fed and the Treasury had to flood the financial markets with cash in order to stave off a world wide depression.  What was suppose to happen was that once the banking system started to function again banks were suppose to once again step in to perform their fiduciary responsibility to our society and :start "lending" funds to commerce and the private sector. They haven't done it. Therefore making it necessary for the Fed to continue to provide the funds to keep the system working. I suspect a major cause of the banks not functioning as banks was the elimination of section 20 &  32 of the Glass Steagill act of 1933. In essence Banks are no longer banks but wall street brokerage houses. As a result it is much more profitable for them to speculate within the system then to lend money and service the public in a manner that allowed us to prosper for over seven decades. The idealist fix would be to separate the banks from the brokerage houses. as Sanford Weill former chairman of Citygroup advocated back in 2012. Doesn't look like that is going to happen. The  Government passed Dodd Frank in an attempt to regulate the new banks . It's an impossible task. Recently the banks have increased their lending. However not nearly enough o get the government out of the banking system. AND as we are learning government agencies make lousy bankers.
Jul 9, 2013 10:20PM
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Hate to Break it to ANYBODY....Wall St. existed long before Bernanke was born and hundreds of Companies before him also...

And Wall St. will be around long after Bernanke and probably most of us are gone...

Including thousands upon thousands of Companies and Businesses.

Jul 10, 2013 1:26AM
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Yeah like wall street was EVER A REAL ECONOMY.
Jul 10, 2013 1:37AM
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Hey Regal man500,  They are!!!  And believe me , we're 99% WORSE OFF
Jul 10, 2013 10:43AM
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Our last Depression....Lasted roughly about 15 years, depending on whose opinions you want to accept...As many would say, the War helped get us back on our feet..

It jump started manufacturing again and Capitalist were willing to invest for profit.

Even before we were knee deep in the Conflict, political motives were afoot to supply the War machine.

 

Similar objectives abound today, but the premise is a little different and other cost have dragged us down...Also the fact that most Americans want us out of two unfounded, unfunded Wars, plus nosing into other conflicted areas...Expensive to our bottom line, and for the most part little has been accomplished...Pray for the expense some of our children and their families have had to endure.

Only certain Sectors have benefitted from most of this, in the Military Industrial Complex.

To expense those monies back to America, would more than likely, jump start our Economy into a full recovery....Infrastructure, rebuilds in transportation, energy production and our power grids; Maybe even in updating of educational buildings if need be...

People with jobs and pay checks...Buy things.

Jul 10, 2013 11:10AM
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Comparing us to Japan may be folly, but because of their mindsets; I belive it is very hard to get a true handle on all their problems...And the Japanese have adjusted or learned to live with less..

I hope the same faith does not befall to Americans, if so we are in for a long haul, out.

 

Going back over the last couple decades or so, I would have to think Japan was way to dependant on the American buying consumer...We interjected billions upon billions into their coffers and economies,

even at certain local levels..

Maintaining Military bases and camps in their Country, was a god send in many places. And we have contributed to their well being since the early 50s.

When China and other Asian Countries started to indulge in becoming a trading partner with the Americas...Japan was entering a troubling stage and had lived on her accomplishments beyond their times..

With further expansion of trade with Asia or India, Japan was slow to catch up or expand further to other trading partners..

Then along comes the downturns of the 2000s, Worldwide and Japan like many others were set back about another 10 years plus.. 

We are hardly Japan but we also have to find ways to move forward and recover on our own, because everyone else is doing the same for themselves.

It is not neccessarily a Political thing, it is an American thing and Mindset..We have to change.

Jul 9, 2013 10:25PM
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I'm sure glad all of us Economic Whizzes, understand Recessions, Recoveries, Quantitive Easing and the FEDs policies and strategies under Bernanke...

 

Wonder what the other experts would have done..??

Jul 9, 2013 8:02PM
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Congress is on a  break  duh ........

-.

-+

 

 

 






 

Jul 10, 2013 8:47AM
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It's all rich peoples money.

 

 Poor and middle class money won't come into play until the market takes it's dive.

Jul 10, 2013 2:23AM
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These writers are idiots. The market is up, what, 6000 points, and they are saying Wall St. might be buying into it. Crazy!
Jul 9, 2013 7:32PM
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Wall Street and Congress should listen and take the sage advice of Bernanke and

Warren Buffett and we`ld be 100% better off.

Jul 9, 2013 7:30PM
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Bernanke knows more about markets than 99.9% of wall street does.If wall street listened

to Bernanke and Buffett we would be a hell of a lot better off.

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