Once more, the Fed has waved on the risk rally.
The Dow, as a result, raced higher Monday, adding 136 points to 10,405 after a much awaited speech from Fed Chairman Ben Bernanke. The S&P 500 jumped 15, or 1.5 percent to 1109, its first close above 1100 since Oct. 2, 2008.
Tuesday's markets face several economic reports and a few retailers' earnings. The Producer Price Index is released at 8:30 a.m., and industrial production is reported at 9:15 a.m. Treasury's international capital flow data is released at 9 a.m., and the National Association of Home Builders survey is reported at 1 p.m. Earnings include reports from Home Depot, Saks, Target and TJX.
Traders said Bernanke's comments Monday reassured markets that the Fed intends to keep the current status quo in place -- a low rate environment and a Fed that's not too terribly concerned about the U.S. dollar's decline.
However in an unusual turn, Bernanke did comment on the U.S. dollar Monday, noting that the Fed is monitoring the value of the dollar closely.
"We are attentive to the implications of changes in the value of the dollar and will continue to formulate policy to guard against risks to our dual mandate to foster both maximum employment and price stability," Bernanke said.
"Essentially what he's saying to me is 'don't worry too much about the dollar. If I'm doing my job well, the dollar will strengthen,'" said Adam Boyton, currency strategist at Deutsche Bank.
The dollar initially firmed on that midday comment but then gave back its gains. "Why did the market so rapidly ignore what the chairman has to say? I think maybe the answer to that question is ultimately there wasn't anything new there," he said.
Bernanke did reference troubles in the commercial real estate market and the potential trouble for banks as $500 billion of CRE Loans are scheduled to mature annually over the next several years.
"I think they're slowly saying things to the investing public that will justify their keeping rates at zero despite the fact the economy is showing growth," said Jefferies Treasury strategist John Spinello.
Spinello said he did not hear anything new in Bernanke's comments. "I thought he made the market feel comfortable about buying risk assets," he said.
The dollar Monday declined 0.3 percent against the euro to $1.4973. Treasurys saw buyers along the curve in what Spinello described as post auction buying.
The yield on the 10-year, as a result, fell to 3.331 percent. Gold continued to climb, adding $22.50 per ounce to $1138.60, another record. Oil, meanwhile, also gained as the dollar weakened.
Financial stocks, and the stock market, gave back some gains late Monday, after widely followed analyst Meredith Whitney said on "Closing Bell" that she has not been this bearish in a year. Whitney is well regarded for her call on the financial stocks. On Monday, she said there's no fundamental reason why stocks like Tiffany, Bank of American and Caterpillar are up so much. But the market shook off her comments, and the financials ended the day 1.2 percent higher.
Tim Smalls of Execution LLC said the path for stocks generally remains higher for now, and even Whitney's comments did not keep them down. "I think what you've got is people are compelled to put money to work because we did not have a correction," he said.
Smalls said the market has been correcting itself sector by sector. For instance, the bank index, representing a key sector of the market, is now lower than it was in early August, but tech and energy are higher, he said.
"There's been a sector rotation as the overall market has maintained its positive bias and for me that's basically healthy,'" he said.
Worth a Note
Smalls' firm Execution, in an annual global fund raiser, was able to raise $2.7 million for children's' charities last Thursday. Execution has contributed more than $15 million to charities since it started the annual campaign in 2001. Execution donates its revenues from one trading day to multiple charities for children.
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