Bernanke Comments Send Stocks Higher

August 31, 2012

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VTIVanguard Total Stock Market
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Fed Chairman Bernanke says just enough to put a bid in the stock market.

Global stock markets welcomed the Federal Reserve’s latest recognition that the U.S. economy is indeed on shaky ground and another round of quantitative easing might be in the cards, if needed.

Speaking at the U.S. central bank’s annual retreat in Jackson Hole, Wyo., Federal Reserve Chairman Ben Bernanke expressed concern over a stagnant U.S. labor market and an economic environment that is “far from satisfactory,” saying he was open to the possibility of stimulating the economy further through asset purchases.

Bernanke didn’t actually commit to anything or specify any concrete action plan, but the rhetoric was enough to spur a bit of buying for a market that had been looking for signs of so-called QE3, the market’s jargon for Fed bond buying aimed at keeping rates low.

His comments came largely as expected given recent economic data that have betrayed the sluggish pace of U.S. economic growth. The unemployment rate has remained largely unchanged above 8 percent, while consumer confidence has reached multimonth lows, among other things.

What's more, U.S. second-quarter GDP came in at 1.7 percent, meeting the prevailing market expectation, but still confirming what many have suspected: that the U.S. economy is in deceleration mode. First-quarter GDP was 2 percent.

The Dow Jones industrial average raced up more than 1 percent in early trade, but pared gains late in the session to close some 90 points higher at 13,090.76. It seems Bernanke's words were enough to fuel a positive closing but not enough to really spur any significant rally in stocks.

Broad equities funds such as the SPDR S&P 500 ETF (NYSEArca: SPY) and the Vanguard Total Stock Market ETF (NYSEArca: VTI) were all following the modest upward momentum, and they, too, saw earlier gains trimmed back at market close. SPY tagged on gains of 0.48 percent on the day while VTI rose 0.6 percent.


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