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Market Insider
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The markets may be looking for more from Fed Chairman Ben Bernanke than he will be able to deliver.
Bernanke's semiannual testimony on the economy is a key event for markets Tuesday. The hearing before the Senate Banking Committee begins at 10 a.m. and is likely to continue for several hours. On Wednesday, he follows up with a visit to the House for a similar hearing.
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"Bernanke has a huge job before him. His key issue is reassurance, reassurance, reassurance," said Diane Swonk, chief economist at Mesirow Financial.
Stephen Stanley, chief economist of RBS Greenwich Capital, points out there's very little news Bernanke should make on the Fed's economic view since its forecast was just released with the FOMC minutes last week.
"There's certainly headline risk as there always is when the Fed chairman is in the hot seat," said Stanley. He said though there is less predictable news than in the past when the Fed chairman unveiled the economic outlook. The Fed in the past had maintained a blackout on speaking engagements for several weeks before the testimony. That is unlike now, when there was a whole raft of Fed speaking engagements in the past week.
"I really don't expect to have a lot of new ground broken. The questions the markets have to deal with now have to do with the financial bailout and most of the things are the things the Treasury is pulling the trigger on," he said.
"My guess is there will be a fair amount of fireworks. The mood in the country is getting pretty foul," Stanley said of the Senate hearing.
Bernanke, in a sense, is the warm up act for President Barack Obama, who gives his state of the nation address before a joint session of Congress Tuesday evening at 9 p.m. President Obama is expected to focus on the nation's economic ills and what his Administration is doing to deal with them.
These events come as investors grapple with a stock market that has plunged to near 12-year lows, with little sign of abating. The Dow fell 250 points to 7114, a decline of 3.4 percent. The S&P 500 broke through its November low Monday afternoon, plunging 26 points, or 3.5 percent to 743.
Traders are glum and expect more volatile selling before the market hits bottom. Uncertainty about government programs to rescue the banks and the economy and a pervasive gloom about the duration and depth of the recession have combined to drag stocks lower. Reports that the government could turn its preferred holding in Citigroup into a larger common equity stake initially bolstered the market Monday morning, but it soon reversed.
The selling intensified after CNBC's David Faber reported that government-owned AIG needs more funding and that it will report a record $60 billion loss. The loss would be the biggest corporate loss ever.
After the bell, JPMorgan, viewed as one of the sturdier financials, said it was cutting its dividend to save $5 billion a year. The banking company said its first quarter has been "solidly profitable" so far, but that it is positioning itself to handle "a highly stressed environment." It said cutting the dividend was not related to the government's Troubled Asset Relief Program, but the additional capital will help J.P. Morgan repay the government as soon as is "prudent." JPMorgan stock rose on the news.
Big Ben
Besides Bernanke, traders are also watching S&P/Case-Shiller Home price data, due at 9 a.m. " and February consumer confidence, expected at 10 a.m. Fed Governor Elizabeth Duke is speaking at 12 p.m. and there are several major earnings reports, including Home Depot [HD
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] and Thomson Reuters.
But Bernanke's testimony is the main event.
"He's kind of pushing a rock up hill and it keeps rolling down on him," said Swonk of Bernanke. "It's a difficult task before him to reassure the markets on the existing financial situation, let alone what could happen as the economy worsens and how they're going to handle that."
"They've been trying to shore up confidence against a very slippery slope for quite a while and it's kind of a moving target on them," said Swonk.
Stanley said the markets will be looking for any word on the Fed's views on buying Treasurys and on the TALF, the Term Asset-Backed Securities Loan Facility. "At this point, the one thing the Fed has a lot of control over is the TALF so he may get some questions about that, but I suspect Senators eyes will glaze over real quick and they're not up on the details," he said.
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