Going by the Markets, the Fed’s Doing It All Right

One day after Ben Bernanke was asked what he believed his legacy would be, we saw the answer: record-high stock market levels.

At the conclusion of the question-and-answer session following his speech before the National Bureau of Economic Research in Cambridge, Massachusetts, on Wednesday, Federal Reserve Chairman Ben Bernanke was asked what his legacy would be. On Thursday we saw the answer: record-high stock market levels. Earlier during the Q&A session, Dr. Bernanke noted that a “highly accommodative monetary policy” would remain in place “for the foreseeable future” because the current unemployment rate of 7.6 percent “overstates” the health of the economy.

Those words were refreshing music to the ears of investors, who had been listening to nothing but The Taper Blues since June 19. As a result, Thursday became a classic “risk on” day, with investors buying every share which wasn’t nailed to the trading floor. The S&P 500 closed at a new record high and the Russell 2000 Index achieved its fifth consecutive record-high close.

The U.S. Department of Labor’s disappointing report on initial unemployment claims — which unexpectedly jumped to 360,000 – failed to dampen investor enthusiasm. A number of economists explained the increase as a seasonal anomaly resulting from furloughs caused by automobile plant shutdowns, while changes are made for the autumn release of next year’s models.

The Dow Jones Industrial Average (NYSEARCA:DIA) jumped 169 points to finish Thursday’s trading session at 15,460 for a 1.11 percent advance. The S&P 500 (NYSEARCA:SPY) surged 1.36 percent to a new record-high close at 1,675.02. The Nasdaq 100 (NASDAQ:QQQ) skyrocketed 1.96 percent to finish at 3,059. The Russell 2000 (NYSEARCA:IWM) soared 1.25 percent to end the day at a new record-high closing level of 1,033.18.

In other major markets, oil (NYSEARCA:USO) sank 1.12 percent to close at $37.01. On London’s ICE Futures Europe Exchange, September futures for Brent crude oil declined by 93 cents (0.86 percent) to $106.74/bbl. (NYSEARCA:BNO). August Gold Futures advanced by $37.80 (3.03 percent) to $1,285.00 per ounce (NYSEARCA:GLD). Transports went mag lev on Thursday, with the Dow Jones Transportation Average (NYSEARCA:IYT) accelerating 1.36 percent.

In Japan, stocks managed to advance despite the fact that the yen strengthened enormously to 98.27 per dollar before the closing bell in Tokyo. A stronger yen causes Japanese exports to be less competitively priced in foreign markets (NYSEARCA:FXY). Yen strength failed to hold stocks down after the Bank of Japan reaffirmed its commitment to expand the monetary base by 60-70 billion yen per year. The Nikkei 225 Stock Average advanced 0.39 percent to 14,472 (NYSEARCA:EWJ).

In China, stocks continued to make shocking gains following a July 9 speech by Premier Li Keqiang that the government’s position on monetary policy may soften before the end of this year. Rumors circulated on Thursday that the government was planning a new stimulus program. The Shanghai Composite Index skyrocketed 3.23 percent to close at 2,072 for its biggest two-day rally since January of 2012 (NYSEARCA:FXI). Hong Kong’s Hang Seng Index jumped 2.55 percent to finish the session at 21,437 (NYSEARCA:EWH).

The major European stock indices got a boost from Ben Bernanke, following his remarks on Wednesday that the Fed’s “easy money” policy would continue “for the foreseeable future”. The Fed’s monetary policy has been seen as helping to sustain demand for European exports to the United States.

The Euro STOXX 50 Index finished Thursday’s session with a 0.81 percent advance to 2,681 — struggling back toward its 50-day moving average of 2,709. Its Relative Strength Index is 53.88 (NYSEARCA:FEZ).

Technical indicators reveal that the S&P 500 continued rising above its 50-day moving average of 1,630 after closing at 1,675.02, surpassing its May 21 record-high closing level of 1,669. Its Relative Strength Index increased from 60.04 to 65.49. The MACD continues to rise above the zero line, suggesting a continued advance.

For Thursday, all sectors were solidly in positive territory as the technology sector took the lead, with a 1.69 percent gain. The energy sector was the laggard, advancing 0.80 percent.

Consumer Discretionary (NYSEARCA:XLY): +1.43 percent
Technology (NYSEARCA:XLK): +1.69 percent
Industrials (NYSEARCA:XLI): +1.59 percent
Materials (NYSEARCA:XLB): +1.62 percent
Energy (NYSEARCA:XLE): +0.80 percent
Financials (NYSEARCA:XLF): +0.95 percent
Utilities (NYSEARCA:XLU): +1.61 percent
Health Care (NYSEARCA:XLV): +1.29 percent
Consumer Staples (NYSEARCA:XLP): +1.57 percent

Bottom line: One day after Ben Bernanke was asked what he believed his legacy would be, we saw an example of how Dr. Bernanke’s legacy will be described in the history books: record-high stock market levels.

John Nyaradi is the author of The ETF Investing Premium Newsletter.

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