Ben Bernanke’s first press conference was quite a spectacle and one can only wonder who gave him and Wall Street their rose colored glasses.
The economy is growing modestly, inflation is not a problem, job growth is slow but will improve.
We’ll discuss all of this in greater detail in a moment but first take a look at some technical and seasonal indicators.
On My Radar
In the view of the S&P 500 (NYSE:SPY) above, we see the significant breakout last week above the 1340 resistance level which now becomes support and the upward vector of the MACD on a daily basis.
RSI is now at edge of the 70 level on a 14 day basis which typically precedes a correction and is also in a similar range on the weekly chart, while Stochastic is also overbought.
The View From 35,000 Feet
Dr. Bernanke’s historic press conference was the news of the week and it was interesting to watch, although no real surprises emerged from the session. His efforts to restore credibility to the Fed and provide more transparency seemed to work as markets rose for the week, but I would have to say that, in my view, he’s looking at the world through rose colored glasses.
Starting with GDP, by his own admission, the central bank has taken extraordinary steps to stimulate the economy and this week, 1Q GDP came in at a meager 1.8%, down from 3.1% and this is truly a miserable figure, since not even 3% growth will be enough to bring down unemployment in any meaningful way.
According to a recent Gallup poll, 55% of Americans think the economy is in a recession or depression.
The dollar continued its decline to multi-year lows while gold (NYSE:GLD) and silver (NYSE:SLV) continued their meteoric rise. For more analysis and guidance on the shares, consider a free 14-day trial to our premium Gold & Silver Investment Newsletter.
So we have a slowing economy and most of us don’t share his optimism for continued growth and better job conditions in the future. He tells us that inflation is transitory and moderate, however, if you’ve filled up your car with gas or been to the grocery store lately, you know that inflation isn’t as moderate as suggests.
+ New Home Sales (up but near historic lows)
+ Consumer Confidence
+ Durable Goods
– Case/Shiller Home Price Index declines
– GDP declines to 1.8% from 3.1%
– Initial jobless claims rise
– Chicago PMI declines from previous report
– Japan outlook changed to negative from stable
What It All Means
A slowing economy combined with seasonal weakness points to weaker times ahead. The positive continues to be corporate profits and that is largely because the American consumer/worker is becoming more and more irrelevant as companies continue to move jobs, operations and sales offshore.
Stagflation, really the worst of all worlds, appears to be a growing possibility. The Fed will continue their efforts to prop up markets, which by many measurements have been a dismal failure, and now they find themselves being boxed in by rising inflation and a growing movement towards reducing the deficit.
The Week Ahead
Major Issues/Themes: This week will bring a blizzard of economic data climaxing with the April Non farm Payrolls Report on Friday.
Monday: March Construction Spending, April ISM, March Car Sales
Tuesday: March Factory Orders
Wednesday: April Challenger Job Cuts, April ADP Employment Change, April ISM Services
Thursday: Initial Unemployment Claims, Continuing Claims,
Friday: April Non Farm Payrolls, April Unemployment Rate, March Consumer Credit
Disclosure: No positions in ETFs or stocks discussed in this article.
John Nyaradi is the author of Super Sectors: How To Outsmart the Markets Using Sector Rotation and ETFs
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