Market drops following Ben Bernanke’s testimony in front of the Senate Banking Committee; a failure of expectations. The S&P 500 dropped about 12 points as Mr. Bernanke's written testimony came out.
There were several statements in the written testimony that caught traders' attention:
1) "...the economic outlook remains unusually uncertain." This is the main phrase that traders are talking about. (echoing cautious commentary made by a number of CEOs earlier this morning.)
2) "...financial conditions--though much improved since the depth of the financial crisis--have become less supportive of economic growth in recent months."
3) "With credit demand weak and with banks writing down problem credits, bank loans outstanding have continued to contract."
4) "...progress in reducing unemployment is now expected to be somewhat slower.
All of this could have been easily gleaned by just reading the FOMC minutes and recent bank earnings reports.
The biggest problem is a failure of expectations: traders had whipped themselves up to believe they would get a brilliant treatise on strategies for revenue growth, but there seems to be more devoted to a somber assessment of the economy and to QE exiting than there is to steps he can take to revive the economy.
Also of note, the10-year yield falls below 2.90 percent for the first time since April 27.
Even though the recent FOMC minutes had clearly indicated similar sentiments on the economy, many cyclical stocks (Caterpillar , IBM , McDonald’s , BHP Billiton , among others) moved sharply lower following Bernanke’s comments on the economy,
Still of concern to an economic recovery: shaky housing conditions and a frustratingly tough job market.
Bernanke adds: ”the housing market remains weak, with the overhang of vacant or foreclosed houses weighing on home prices and construction. An important drag on household spending is the slow recovery in the labor market and the attendant uncertainty about job prospects.”
-- CNBC Producer Robert Hum contributed to this blog post.
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