Ben Bernanke is becoming the modern day EF Hutton-when he speaks everyone listens as the stock market did a complete reverse and rallied after his speech today. Bernanke proposed no new steps to boost the economy but hints Congress should help.
The economy seems to have slowed to a crawl as the GDP increased by a meager 1% in July.
Here are the top financial stories of the day:
1) Stocks Turn Positive After Bernanke-From The Wall Street Journal
U.S. stocks surged in whipsawed trading Friday as investors applauded Federal Reserve Chairman Ben Bernanke's stern remarks urging fiscal policymakers to take appropriate measures to jumpstart the struggling economy.
The Dow Jones Industrial Average recently rose 157 points, or 1.4%, to 11307. The blue-chip index staged a big reversal after opening lower and dropping as much as 221 points right after Mr. Bernanke's comments were released.
Stocks pared losses throughout the morning and turned higher after market participants had time to digest the Fed chief's latest remarks about the weak economic landscape.
Investors said much of Friday's bullish tone was related to the comments Mr. Bernanke made at the end of his speech. He criticized the debt-ceiling negotiations this summer, saying they disrupted financial markets as well as the economy. Mr. Bernanke also noted "the country would be well served by a better process for making fiscal decisions."
"I think we got exactly what we needed to get from Bernanke," said Phil Orlando, equity strategist at Federated Investors. "I thought he took the Congress and the Administration to the woodshed. The Fed's done all it can from a monetary standpoint. Now it's time for appropriate fiscal policies to get the economy going again."
The Standard & Poor's 500-stock index gained 21 points, or 1.8%, to 1180, led higher by consumer discretionary and technology stocks. All 10 of the S&P 500's sectors rose. The technology-heavy Nasdaq Composite surged 64 points, or 2.6%, to 2483.
Mr. Bernanke said the Fed is ready to provide further support to a persistently weak economy, but didn't indicate any move was imminent despite fresh signs of anemic growth. He didn't elaborate on the central bank's remaining tools to boost the economy. Instead, Mr. Bernanke said the Fed would extend its mid-September meeting to two days to discuss options the central bank could pursue.
"The Fed made the right move," said Douglas Cote, chief market strategist at ING Investment Management.
"It is prudently stepping aside to keep the pressure on the U.S. administration to institute both long-term fiscal restraint and pro-growth economic policies."
Mr. Cote said he is not in favor of a full-fledged third bond-buying program, commonly known as quantitative easing, or QE3. "These short-term fixes are the wrong answer," he added. "All monetary authorities can do is buy time. I want some long-term structural reform."
Before Mr. Bernanke's comments, the Commerce Department said gross domestic product rose 1% during the April-to-June period—revised down from 1.3%—which matched Wall Street expectations. Additionally, U.S. consumer confidence barely inched up at the end of August after plunging earlier in month, according to data released Friday.
Investors were also keeping an eye on Hurricane Irene, which headed toward landfall on the East Coast. Seth Setrakian, co-head of trading at First New York Securities, said he wouldn't be surprised if this rally faded by end of the day, especially as concerns ramp up about what sort of impact the hurricane may have.
"You could see a fear selloff into the end of the day," he said. "People are starting to freak out. A lot of risk reduction could happen because no one knows what's going to happen."
Gold futures climbed to about $1,795 an ounce as investor anxiety prompted some moves back into the haven asset after a sharp selloff this week. Crude-oil futures pared earlier losses and traded around $85 a barrel. The U.S. dollar lost ground against both the euro and the yen.
In corporate news, shares of Tiffany climbed 9.3% after the high-end jewelry retailer reported better-than-expected fiscal second-quarter results and raised its full-year earnings estimate.
OmniVision Technologies slumped 31% after the imaging-technology company issued a disappointing earnings and revenue outlook for the current quarter.
Pandora Media climbed 7.5% after the company reported fiscal second-quarter revenue that was more than double year-earlier levels.
Shoe Carnival's fiscal second-quarter profit fell 34% as the retailer blamed inclement weather for softer-than-expected sales, though it issued an optimistic outlook for the current period. Shares fell 3.1%.
Krispy Kreme Doughnuts' fiscal second-quarter profit soared as the doughnut chain posted higher same-store sales and a sharp increase in franchise revenue abroad. The stock rose 13%
2) Bernanke proposes no new steps to boost economy-From the AP
Federal Reserve Chairman Ben Bernanke leaned on Congress on Friday to do more to promote hiring and growth, or risk delaying the economy's return to full health.
Bernanke proposed no new steps by the Fed to boost the economy. But at a time when Congress has been focused on shrinking long-run budget deficits, he warned lawmakers not to "disregard the fragility of the current economic recovery."
Bernanke, who spoke at an annual economic conference in Jackson Hole, left open the possibility that the Fed will take further steps to strengthen the economy. He said its September policy meeting will be held over two days, instead of just one, to allow for a "fuller discussion."
But analysts said the speech provided no assurances of any new help from the Fed.
"He appears to be saying that the Fed has largely played its part and that the politicians need to step up their game," said Paul Dales, senior U.S. economist at Capital Economics.
Stocks fell after the speech was released but then recovered. The Dow Jones industrial average rose about 150 points in early-afternoon trading as traders responded to Bernanke's judgment that the job market and the economy would return to full health in the long run.
Bernanke's speech followed news that the economy grew more slowly in the April-June quarter than previously estimated -- a meager 1 percent annual rate.
Some economists worry that Europe's financial crisis, along with persistently weak U.S. job growth and falling home prices, could tip the economy into another recession. Those fears have pulled down stock prices in the past month. The Dow has lost 12 percent of its value since late July.
The sell-off on Wall Street was triggered Congress's battle over raising the debt ceiling. In his speech, Bernanke criticized lawmakers for their handling of the issue and warned that further standoffs could hurt the economy in the long run.
A plan Congress passed this month means annual deficits are expected to be reduced by $3.3 trillion over the next decade through spending cuts.
The Fed chairman said long-term deficit reduction is necessary. But he said that future economic health could be jeopardized if hiring and growth are not strengthened now.
Analysts noted the lack of new proposals in Bernanke's speech.
But Aneta Markowska, senior U.S. economist at Societe Generale, said the extension of the Fed's September meeting to two days might suggest something new could be unveiled.
Many have looked with anticipation to the Fed to do more. It has already kept short-term interest rates near zero for 2 1/2 years. And earlier this month, it said it would keep them there through mid-2013.
"I'm a little fearful that there are a lot of expectations built in that I don't think Bernanke can deliver on," said Jack Ablin, chief investment officer at Harris Private Bank.
To promote growth, Bernanke said the government must pursue tax, trade, and regulatory policies that encourage economic health.
The approach of this year's Jackson Hole conference raised expectations. In last year's speech, Bernanke signaled that the Fed might unveil a Treasury-buying plan to help lower long-term rates. In November, the Fed announced a $600 billion such program. The bond purchases were intended to lower long-term rates, lift stock prices and spur more spending.
Immediately afterward, stock prices started rising and continued up until May, when they leveled out.
Still, critics, from congressional Republicans to some Fed officials, have raised concerns that the Fed's Treasury purchases could ignite inflation and speculative buying on Wall Street, while doing little to aid the economy.
Others have wondered whether any further lowering of long-term rates is needed. Investors seeking the safety of U.S. debt have forced down the yield on the 10-year Treasury note to 2.19 percent -- a full point lower than it was when the Fed completed its Treasury purchases about two months ago. Yet the economy is still sputtering.
The Congressional Budget Office this week estimated that the unemployment rate will hover around 8.5 percent when President Barack Obama seeks re-election next year. And it predicts that unemployment will stay above 8 percent through 2013.
That continued weakness is why many speculated that the Fed would still embark on some new plan to help the economy. They note that while inflation has risen, it's still within the Fed's target range.
At their meeting earlier this month, Bernanke said policymakers discussed the "relative merits and costs" of further steps to spur growth. Clues to where the Fed is leaning might be found in those meeting's minutes, which will be released Tuesday.
"There could be more action, but we're in treacherous waters right now," said John Silvia, Wells Fargo's chief economist. "What he's doing is making small moves."
Many economists note, however, that the economy's main problem is not that interest rates are too high.
They say the main problem is that consumer spending remains too weak. So businesses feel little incentive to hire, expand and invest.
Until demand for goods and services steps up, the Fed may have limited ability to strengthen the economy.
Joshua Shapiro, an economist at MFR Inc., said that by dwelling on budget and tax issues facing Congress, Bernanke was conceding that the Fed has "basically exhausted its tools."
3) Economic Growth Slows to Crawl, GDP Increase at 1%-From CNBC
The U.S. economy grew much slower than previously thought in the second quarter as business inventories and exports were less robust, a government report showed on Friday, although consumer spending was revised up.
Gross domestic product growth rose at annual rate of 1.0 percent the Commerce Department said, a downward revision of its prior estimate of 1.3 percent. It also said after-tax corporate profits rose at the fastest pace in a year.
Economists had expected output growth to be revised down to 1.1 percent. In the first quarter, the economy advanced just 0.4 percent. The government's second GDP estimate for the quarter confirmed growth almost stalled in the first six months of this year.
The United States is on a recession watch after a massive sell-off in the stock market knocked down consumer and business sentiment. The plunge in share prices followed Standard & Poor's decision to strip the nation of its top notch AAA credit rating and a spreading sovereign debt crisis in Europe.
While sentiment has deteriorated, data such as industrial production, retail sales and employment suggest the economy could avoid an outright contraction.
The GDP report comes as central bankers from around the globe gathered for a conference in Jackson Hole, Wyoming.
Federal Reserve Chairman Ben Bernanke will deliver the keynote address on Friday, which will be watched for any sign a further easing of U.S. monetary policy is on the way to support the ailing economy.
The downward revisions to second-quarter growth came as businesses accumulated less stock than previously estimated. Business inventories increased $40.6 billion instead of $49.6 billion, cutting 0.23 percentage point from GDP growth during the quarter.
However, the slow build-up of inventories means goods are not piling up on shelves, which should support growth in the third quarter. Excluding inventories, the economy grew at a 1.2 percent rate.
Output was also curbed by exports, which grew at a 3.1 percent pace instead of 6.0 percent. Imports increased at a 1.9 percent rate rather than 1.3 percent. That left a slightly wider trade deficit and trade barely contributed to GDP growth. Trade had previously been estimated to have added 0.58 percentage point to overall output.
The drag from business inventories was offset by consumer spending, which was revised up to a 0.4 percent rate from 0.1 percent. The increase in spending, which accounts for more than two-thirds of U.S. economic activity, was still the smallest since the fourth quarter of 2009.
Business spending was revised to a 9.9 percent rate of increase from 6.3 percent as investment in nonresidential structures and equipment and software was stronger than previously estimated. But there are fears that the recent stock market rout could make businesses a bit hesitant to spend on capital and hiring.
The report also showed that after-tax corporate profits increased 4.1 percent in the second quarter after edging up 0.1 percent in the first three months of the year. It also showed inflation pressures abating, with the personal consumption expenditures price index rising at a 3.2 percent rate. That compared to 3.9 percent in the first quarter.
The core PCE index closely watched by the Fed advanced at a 2.2 percent rate, the largest increase since the fourth quarter of 2009. It was revised up from 2.1 percent.
Quote of the Day from Dave Ramsey.com:
Proverbs 10:4 — Lazy hands make for poverty, but diligent hands bring wealth.
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