Federal Reserve Chairman Ben Bernanke’s evasive speech failed to lift investor mood on Thursday and benchmarks tumbled down by almost a percent. The Fed Chairman used his pet term "tools" this time as well, but he did not specify what ‘tools’ the central bank might use to boost a beleaguered economy. To add to worries, a Labor Department report suggested another spike in jobless claims.
True to historical data, September continues to be the weakest month for the benchmarks and the indices have now registered their fourth loss in the first five days of trading this month. Yesterday, the Dow Jones Industrial Average (DJIA) lost 119 points or 1% to close the day at 11,295.81. The Standard & Poor 500 (S&P 500) closed 1.1% lower at 1,185.90, and the Nasdaq settled at 2,529.1, losing 0.8%. The fear-gauge CBOE Volatility Index (VIX) rose 2.8% to settle at 34.32. The Street had been kept extremely busy during August, but participation seems to be falling this month, and even yesterday consolidated volumes remained low at 7.46 billion on the New York Stock Exchange, Amex and Nasdaq. On the NYSE, for every four stocks that dipped, only one managed to climb up.
In what sounded like an echo of his August 26 speech at Jackson Hole, Wyoming, Ben Bernanke reiterated his pet phrase, “tools, which the Federal Open Market Committee will utilize to stimulate a flagging economy. In his speech on August 26, Bernanke had said: “The Fed has a range of tools that could be used to provide additional monetary stimulus. The Fed Chairman said the central bank will implement tools “as appropriate to promote a stronger economic recovery in a context of price stability. Investors had been hoping to learn more than what they had already learnt the last time around. In August, Bernanke’s hint of the ‘tools’ being unveiled in September had provided enough impetus to guide the benchmarks significantly higher. However, this time Bernanke’s speech pushed benchmarks in the opposite direction as he failed to be specific about the ‘tools that could be used to provide additional monetary stimulus’.
During his speech Bernanke also mentioned that he did not see inflation as a threat to the economy. He said: “Importantly, we see little indication that the higher rate of inflation experienced so far this year has become ingrained in the economy. Inflationary worries had crept in earlier this year following political turmoil in the Persian Gulf nations and the Japanese nuclear crisis, that had sent crude prices soaring to a two and half year high. Elaborating on the inflation issue, Bernanke said: “However, inflation is expected to moderate in the coming quarters as these transitory influences wane. This is reminiscent of a speech by Bernanke delivered on April 27, when he had suggested inflationary concerns would be short lived, whereas it was the jobs situation, which posed a bigger challenge to the economic recovery.
Meanwhile, after last week’s highly disappointing nonfarm payroll data, where the government reported zero jobs additions in August, yesterday’s data on initial claims came as yet another disappointment. According to the U.S. Department of Labor reported: “In the week ending September 3, the advance figure for seasonally adjusted initial claims was 414,000, an increase of 2,000 from the previous week's revised figure of 412,000. The 4-week moving average was 414,750, an increase of 3,750 from the previous week's revised average of 411,000. However, this figure was in line with the economists’ consensus estimate.
While investors grew disheartened after Bernanke’s evasive speech, they were also kept waiting for President Obama’s speech to the Congress that was scheduled at 7 P.M. The jobs market was expected to be the focus area of Obama’s speech as the speculated $300 billion package was being perceived as a key measure to boost the jobs market. It was being speculated that a $300 billion package will have to deal with tax cuts, infrastructure spending and local government aid.
Apart from the Labor Department’s report, data from the Commerce Department revealed that the U.S. trade gap had narrowed to $44.81 billion in July, due to a spike in exports. The consensus estimate had projected the trade deficit to have shrunk to $50.9 billion. The report stated: “The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that total July exports of $178.0 billion and imports of $222.8 billion resulted in a goods and services deficit of $44.8 billion, down from $51.6 billion in June, revised. July exports were $6.2 billion more than June exports of $171.8 billion. July imports were $0.5 billion less than June imports of $223.4 billion. Separately, the Federal Reserve reported consumer credit had increased at an annual rate of 6% in July 2011.
Coming to sectoral stocks, right after a day of big gains, banking stocks closed in the red. Among the decliners were Bank of America Corporation (NYSE:BAC), Citigroup, Inc. (NYSE:C), JPMorgan Chase & Co. (NYSE:JPM), The Goldman Sachs Group, Inc. (NYSE:GS), Barclays PLC (NYSE:BCS) and Morgan Stanley (NYSE:MS) and they declined by 3.7%, 3.5%, 3.8%, 3.3%, 3.9% and 3.0%, respectively.