Will it or won’t it? The market’s fixation with the Fed is likely to dominate trader talk again Friday, with just durable goods at 8:30 a.m. ET on the economic calendar and the Fed’s Jackson Hole symposium a week away.
St. Louis Fed President James Bullard’s hawkish comments on CNBC’s “Squawk Box” Thursday dampened some of the optimism that the Fed would move soon on another round of asset purchases. On Wednesday, the minutes of the last Fed meeting showed many members leaning toward taking policy steps to help the economy.
But the economy has since shown some slight signs of improvement, with a number of reports coming in better than expected. Bullard pointed out that the market’s expectations for easing this summer have been too high, and those minutes are “stale.”
“Bullard said what everybody should be thinking. Those minutes were a month old. Since then, we had much better housing data, much better retail sales, no signs of inflation at the CPI level,” said Art Hogan of Lazard Capital.
The S&P 500 Thursday lost 11 points but held at 1402, above the psychologically important 1400 level. The S&P regained the 1422 level this week for the first time since April, before briefly pushing to a new four-year high. The Dow Thursday was down 115 points at 13,057, and Nasdaq fell 20 to 3053.
“We certainly had difficulty getting up there,” Hogan said of 1400. “We crept up slowly to those new highs and hit that resistance wall like it’s impenetrable.” Hogan pointed out the price to earnings ratio was 16 the last time the market was trading above 1400 four years ago, and now there’s a p/e of just 12.6.
Fed Chairman Ben Bernanke gives his annual Jackson Hole speech next Friday, and traders are hoping for a read on whether the Fed will ease soon. If the Fed does asset purchases, economists say it could buy mortgage securities this time, and perhaps more Treasurys in a $500 billion or more program.
“Expectations are pretty high for the speech,” said Jan Hatzius, chief economist at Goldman Sachs. But Hatzius said he does not expect Bernanke to reveal much new. “The initial reaction could be disappointment,” he said.
Hatzius said he sees a 30 percent chance for a new round of easing at the September meeting but he said it’s more likely to come later in the year.
Gold and metals were higher Thursday, supported by hopes for more Fed easing and reports that Spain is negotiating conditions for a new aid package.
Gold climbed one percent to a four-month high above $1,670.
Gold could stay in the headlines Friday. The Financial Times late Thursday reported that the Republican party platform, to be adopted at its convention next week, will call for an audit of Federal Reserve monetary policy and a commission to look at restoring the gold standard.
Traders will also be watching Europe Friday, as German Chancellor Angela Merkel meets with Greek Prime Minister Antonis Samaris in Berlin. Samaras is trying to negotiate an extension to Greece’s bailout terms. A press conference will be held at 7 a.m. ET.
Friday is also the twentieth anniversary of Hurricane Andrew, the last category five storm to hit the U.S. Meanwhile, Hurricane Isaac is on a path toward Florida and the Gulf Coast and could hit in the next several days as Republicans gather for their convention in Tampa Bay, Fla.