The exuberance of Tuesday's stock market rally is likely to wane as investors begin to anticipate Wednesday morning Congressional testimony from Fed Chairman Ben Bernanke.
Bernanke appears before the Joint Economic Committee, starting at 9:30 a.m. He speaks on the economic outlook, but traders anticipate he could be questioned about the Fed-orchestrated buyout of Bear Stearns buyout. The Fed said in a statement late Tuesday that it approved the J.P. Morgan acquisition of Bear.
On Thursday, Bernanke testifies specifically on the markets and the Bear Stearns deal before the Senate Banking Committee, where he will be joined by Treasury Undersecretary Robert Steel, J.P. Morgan Chairman Jamie Dimon, and New York Fed President Timothy Geithner.
"Pretty worrisome to traders is Bernanke testifying ... with the market still fragile despite today's performance," said Art Cashin, UBS director of floor operations. "We've got a couple days of volatility here."
Joe LaVorgna, chief U.S. economist at Deutsche Bank said Bernanke's speech is likely to last less than an hour but he will then be questioned. Unlike his semiannual economic report to Congress, Bernanke may reveal more of his personal view, not the view of the entire FOMC. He said Bernanke, therefore, may come off as sounding more "dovish."
"We expect Bernanke to have plenty to say about the recently implemented Fed liquidity measures, particularly since they appear to be having a positive impact on bank lending and the financial markets," LaVorgna wrote.
"We expect the chairman will try to defuse criticism that the Fed is "bailing out" Wall Street with Main Street's dollars -- he will almost certainly be asked about this in the Q and A."
Also on the agenda Wednesday is the release of the ADP employment report, at 8:15 a.m. Expectations are -80,000 for March, compared to -23,000 for February. Traders watch the number with the expectation it may foreshadow the monthly government jobs report, which is due for release Friday. Factory orders are reported at 10 a.m., and oil inventories are reported at 10:30 a.m.
The Dow rose 391 points or 3.2 percent on the first day of the second quarter. The S&P 500 rose 47 points or 3.6 percent, and the Nasdaq rose 3.7 percent or 83 points. At the same time, the dollar rallied against the euro, gaining 1.2 percent. It rose 2.3 percent against the yen. Oil slipped 0.6 percent to $100.98 per barrel, and gasoline rose 1.21 cents per gallon, or 0.5 percent to $2.6392 per gallon.
Who would have believed at any time during these past months that on the day a major bank announced a $19 billion writedown, the stock market would stage such a stunning rally. Financials were the standouts, up 7.5 percent followed by consumer discretionary shares, up 4.3 percent. Banks like J.P. Morgan, Citigroup and Bank of America all were winners even though UBS announced it would take another $19 billion in writedowns, bringing its total to $33 billion. The bank also said it was going to raise $15 billion through a rights offering.