Ben Bernanke Disturbs Investors

Last week, stock prices on global exchanges rose significantly as most American companies reported better quarterly business results than expected, alleviating fears of a weakening recovery in the global economy.

On Wall Street, the Dow Jones rose 3.2 percent last week to 10,424 points, while the Nasdaq index increased by 4.2 percent to 2,269 points. The S&P 500 jumped 3.5 percent to 1,102 points, breaking above the psychologically important level of 1,100 points for the first time in a month. The strong index surge is attributed to better-than-expected business results from most companies in the second quarter. In the technology sector, Apple and Microsoft impressed, while banks and industrial giants such as Caterpillar, GE, Ford, Honeywell, and 3M also reported good results.

The market was positively influenced by the fact that most companies raised their earnings forecasts for the end of the year, indicating that management believes in further growth of the largest global economies. However, trading was cautious, as indicated by the thin trading volume. On Wall Street, the American Stock Exchange, and Nasdaq, less than 9 billion shares changed hands daily, compared to a daily average of 9.65 billion last year.

Analysts say this is a consequence of weak macroeconomic data indicating a slowdown in the recovery of the largest global economy. This was confirmed in a semi-annual report to Congress by Ben Bernanke, the chairman of the U.S. Federal Reserve, who stated that the labor market remains weak and that economic prospects are ‘unusually uncertain.’ This unsettled investors, but not so much because of what Bernanke said, as all recent macroeconomic data confirm that economic growth is slowing, but rather because of what he did not say.

“Bernanke did not say anything about how the Fed plans to stimulate growth again. The market was expecting an announcement of further easing of monetary policy and credit stimulation, answers on how to deal with the threat of deflation, excess capacity, and disruptions in the credit system, but there was nothing about that,” says Craig Peckham, a strategist at Jefferies & Co.

Indeed, Bernanke stated that the Fed is prepared to take further measures if necessary, but not in the short term, as the situation is still being assessed. Therefore, says John Merrill, a director at Tanglewood Wealth Management, trading on Wall Street is mainly participated in by professional traders who react to news about company earnings or specific macroeconomic indicators, while most investors have withdrawn from the market, waiting for clearer signs of the economic situation.

On Friday, the long-awaited results of the ‘stress test’ were also released, checking how European banks would cope with a possible deterioration in the economic situation. It turned out that only 7 out of 91 European banks failed this endurance test and would need to be recapitalized. This is a smaller number of banks facing problems than expected, but analysts are questioning whether the test was demanding enough. How investors will react to this will only be seen on Monday, as the results of the ‘stress test’ were released on Friday after the closure of European exchanges.

Last week, stock prices on European exchanges also rose. The London FTSE index jumped 2.98 percent to 5,312 points, while the Frankfurt DAX strengthened by 2.08 percent to 6,166 points, and the Paris CAC rose 3.05 percent to 3,607 points. On the Tokyo Stock Exchange, the Nikkei index increased by a modest 0.2 percent to 9,430 points. (H)