SOME Recommendations Performance
October 15, 2010
Success is simple. Do what's right, the right way, at the right time.
Success is simple. Do what's right, the right way, at the right time.
Another great week has been had, with the markets undergoing quantitative easing anxiety and a flood of earnings reports, which has provided the necessary fluctuations to help our options activity, for recommendations, therefore profits have grown accordingly. As the market has fluctuated we have been able to capitalize on this situation, and members who followed these recommendations for the past week were able to enjoy a 445% gain.
We have had a terrific run in the past few weeks and are very pleased with our success!
Here are the gains on some of the stock options recommended by SOME during the last week:-
Walmart Stores Inc. (WMT) ……….14 %
Agrium Inc. (AGU)…………….95%
Airgas Inc. (ARG)…………….23%
CSX Corp. (CSX) ……………18%
Penney Company Inc. (JCP)…………….35%
MGM Resorts International (MGM) .…………….15%
Myriad Genetics Inc. (MYGN) ……………38%
Citrix Systems Inc. (CTXS)………….28%
Gannett Co. Inc. (GCI) ……………10%
Human Genome Sciences Inc. (HGSI) ……………33%
Congratulations on a great week and let’s keep the profits rolling!
If you are not already a member of Stock Options Made Easy, then you may wish to become one so that you can benefit from the profits that are being generated!
Success is simple. Do what's right, the right way, at the right time.
Success is simple. Do what's right, the right way, at the right time.
Friday saw the stock market end mixed as weakness in the banking sector dragged on the Dow, while technology shares stayed strong, after Google Inc. provided strong earnings, which helped offset concerns over the foreclosure crisis for financials.
Despite Friday's mixed performance, all three major gauges posted gains for the week. The Dow added about 0.51% over the last 5 trading days, while the S&P rose 0.95% and the Nasdaq surged 2.78%.
It was the second week in a row that stocks rose.
Stocks opened higher Friday after Ben Bernanke, chairman of the Federal Reserve, said the central bank has "a case for further action" to stimulate the economy, citing high unemployment and low inflation.
The mixed activity came as Bernanke made a case Friday morning for new steps by the Fed to boost economic growth. The speech reinforced expectations for more stimulus measures but prompted some confusion over whether the market may have been anticipating a bigger move than the Fed may be planning.
"The market has run for a month on Mr. Bernanke saying he might provide more liquidity," noted Russell Napier, global strategist at CLSA. "It travels on expectations but it can't travel forever on expectations."
Napier said Bernanke's comments indicated the Fed may be considering measures with less magnitude than the level of support investors have been pricing in.
"There would appear -- all else being equal -- to be a case for further action," Bernanke said. But as the Fed contemplates doing more, Bernanke said officials "will take account of the potential costs and risks" of pursuing unconventional policies, and anything that is done will be "contingent on incoming information about the economic outlook and financial conditions."
But the tone cooled as investors digested a bevy of economic reports, including ones showing an increase in consumer spending, a decrease in consumer sentiment, and tame inflation data.
Fueling the bears were escalating concerns about the nationwide foreclosure investigation's potential impact on the banking sector, as evidenced by Bank of America Corp.'s (BAC) trip into new-low territory.
Blue chip, General Electric's (GE), narrower-than-expected quarterly profit, as well as an unexpected dip in the University of Michigan/Reuters consumer sentiment survey, also fanned the bearish flames, virtually negating any optimism stoked by a dose of stronger-than-anticipated retail sales data.
Bank stocks were among the worst performers, as foreclosure practices have come under fire from state and federal regulators. Many banks have halted foreclosures in parts of the country to investigate foreclosure cases where documents were not filed properly, and some regulators are pushing for a nationwide freeze.
However, the session wasn't exactly ruled over by the skeptics; while the Dow Jones Industrial Average (DJIA) may have finished south of breakeven, an impressive earnings report from Google Inc. (GOOG) helped the tech-rich Nasdaq Composite (COMP) to its best finish since May 3.
"After the high-flying cloud computing stocks were crushed last week, now it's the financials that are the big underperformers," noted Senior Technical Strategist Ryan Detrick. "Can the overall market hold up even as the banks continue to drop? Only time will tell, but we all know how that worked during the last bear market."
Results for Major Market Indexes
The Dow Jones Industrial Average (DJIA – 11,062.78) finished the day, with a loss of 31.79 points, or 0.29%.
The S&P 500 Index (SPX – 1,176.19) had a gain, on the day, of 2.38 points, or 0.20%.
The Nasdaq Composite (COMP – 2,468.77), fared the best of the three major indexes, with a gain of 33.39 points, or 1.37%.
The Russell 2000 Index of smaller companies had a loss of 1.52 points, or 0.22%, to settle at 703.17.
By the close of the Week:
The Dow Jones Industrial Average (DJIA) added on 0.51% for the week.
The S&P 500 Index (SPX) tacked on 0.95% for the week.
Meanwhile, the Nasdaq Composite (COMP) finished the week with a gain of 2.78%.
General Electric (GE) was the Dow’s worst performer, falling 5% as the conglomerate's revenue came in short of Wall Street's expectations.
Financial stocks were also weak as concerns over the foreclosure crisis persisted. Bank of America Corp. (BAC) fell 4.9% as S&P Equity Research cut its investment rating on the bank's shares to hold from strong buy, citing concerns that it may be less prepared than peers for future mortgage repurchase demands. J.P. Morgan Chase (JPM) dropped 4%.
"The risk is if there's wrongdoing or things were wrong, they may be responsible for buying back some of these mortgages which would put pressure on their earnings," said David Bellantonio, head of U.S. trading at Instinet. "The weakness in the banks is keeping pressure on the market."
Still, the tech-heavy Nasdaq Composite Index (RIXF) climbed 1.4% to 2,468.77, boosted by an 11% jump in Google (GOOG).The Internet search giant reported a 32% rise in third-quarter profit, beating Wall Street estimates.
About 9.9 billion shares traded on the New York Stock Exchange, the American Stock Exchange and the Nasdaq, the highest since July 1, and above the year's volume average at near 8.78 billion.
Declining stocks outnumbered advancing ones on the NYSE by a ratio of about 3 to 2. On the Nasdaq, the balance was just slightly tilted to the negative side despite the index's 1 percent gain for the day, with 1,340 issues falling and 1,253 shares rising.
Notes of Interest
• The Dow Jones Industrial Average’s (DJIA) was off nearly 84 points at its intraday nadir, but pared most of its deficit to end on a narrower loss of 31.8 points, or 0.3%.
• The S&P 500 Index (SPX) bounced back from its intraday lows, eking out a gain of 2.4%, or 0.2%.
The S&P 500 hit a session high around 1,180 for a third straight day, a level that could become technical resistance moving forward.
The S&P 500 is up 12.1 percent since Sept. 1, partly on the expectation of further accommodative policies from the U.S. central bank.
• Nasdaq Composite (COMP) avoided the red altogether to finish with a gain of 33.3 points, or 1.4%.
• Crude futures retreated again today, as Federal Reserve Chairman Ben Bernanke's allusions to more quantitative easing fueled the U.S. dollar's rebound from eight-month lows. Elsewhere, widespread strikes about pension reform have either reduced or stopped production at all of France's refineries, which also weighed on black gold. By the close, November-dated crude oil futures gave up $1.44, or 1.7%, to settle at $81.25 per barrel. For the week, the front-month contract shed 2.1%.
• Gold futures: Bernanke's call for cautious monetary easing also had a negative impact on gold futures, which backpedaled from record highs today. Furthermore, the greenback's first positive session in four also pressured the malleable metal into the red, as foreign currency holders backed away from the dollar-denominated commodity. Against this backdrop, gold for December delivery ended on a deficit of $5.60, or 0.4%, at $1,372.00 an ounce. For the week, though, the malleable metal tacked on a robust 2%.
• Bonds: The price rose on the benchmark 10-year U.S. Treasury, pushing the yield down to 2.57%.
Bernanke: Monetary Policy in a Low-Inflation Environment
Federal Reserve Chairman Ben Bernanke gave the clearest signal yet that the Fed is about to act to further spur the sluggish U.S. economy, stating that "there would appear...to be a case for further action."
The Fed chairman, in a speech in Boston Friday morning, said persistently high unemployment poses too great a threat to the economy, and that the central bank needs to weigh the risk of weak prices, rather than focus on its traditional concerns about inflation. He suggested the battle against inflation has largely been won by the Fed.
"For the first time in many decades, [the Fed] had to take seriously the possibility that inflation can be too low as well as too high," he said.
The Fed cannot take its usual step to spur spending by cutting its key lending rate, which has been near 0% since December 2008.
But Bernanke's comments Friday set the stage for the Fed to announce plans to purchase additional assets at its next meeting -- a two-day meeting that concludes on November 3. The Fed has purchased nearly $2 trillion in assets over the last two years in an effort to pump money into the economy.
Empire State Manufacturing Survey
A gauge of manufacturing in New York State jumped in October, lifted by improvements in new orders and shipments, the New York Federal Reserve said in a report on Friday.
The New York Fed's "Empire State" general business conditions index rose to 15.73 in October from 4.14 in September.
Economists polled by Reuters had expected a reading of 6.50 for October. New orders index climbed to 12.90 in October from 4.33 the previous month, and shipments advanced to 19.39 from -0.27.
The inventories index, however, fell below zero and hit its lowest level since January.
Employment gauges were mixed. The index for the number of employees climbed to 21.67 in October from 14.93. The average employee workweek index dipped to 3.33 from 7.46.
The index of business conditions six months ahead rose to 40.00 in October from 31.34 in September.
The survey of manufacturing plants in the state is one of the earliest monthly guideposts to U.S. factory conditions.
U.S. Retail Sales
U.S. retail sales in September grew 0.6% as consumer bought more autos, electronics, appliances and assorted goods from Internet retailers, the federal government reported Friday.
In addition, August sales were revised up to 0.7% growth from an initial reading of 0.4%, according to data from the U.S Commerce Department. Excluding motor vehicles, retail sales retail sales rose 0.4% in September.
August sales minus autos were revised up to a 1.0% gain from 0.6% originally.
Economists surveyed by MarketWatch had forecast total sales to rise 0.5% in September, or 0.4% excluding the volatile auto segment.
Consumer Price Index
Consumer inflation rose slower than expected in September as energy prices rose at the slowest pace in three months, data released by the Labor Department showed on Friday.
The overall consumer price index rose 0.1% in September and the core index, which excludes volatile food and energy prices, remained unchanged for the second straight month.
Economists polled by Reuters had expected overall prices to rise 0.2% and the core consumer price index to rise 0.1% in September.
Consumer prices over the past year also rose slightly slower than expected. Overall prices rose 1.1% from a year ago, compared to a 1.2% forecast. Core prices rose 0.8% over the past 12 months, a tick below the 0.9% predicted, the lowest 12-month gain since 1961.
The Labor Department said food costs rose 0.3% in September, the fastest pace since October 2008. Energy prices rose 0.7% from August after rising 2.3% in August and 2.6% in July. Energy prices have risen 3.8% in the past year.
In a separate report, the department said real average weekly earnings fell 0.1% in September to $355.04. Economists polled by Reuters had expected earnings to remain unchanged in the month.
Transportation prices rose 0.5% in September, with airline fares up 0.2%, and new vehicles up 0.1%.
Medical care rose 0.6%, with prescription drugs up 0.3%, and medical care services up 0.8%.
Apparel prices fell 0.6% in September, while housing dipped 0.1%.
Tobacco and smoking products gained 0.1%.
U.S. Consumer Sentiment
U.S. consumer sentiment unexpectedly dipped in early October to its weakest level since July, with buying plans on the decline, a survey released Friday showed.
Also, consumers' assessments of government economic policies fell to the lowest level since U.S. President Barack Obama took office, it showed.
The Thomson Reuters/University of Michigan's preliminary October reading on the overall index on consumer sentiment came in at 67.9, down from 68.2 in September and below the 69.0 median forecast among economists polled by Reuters.
The survey's barometer of current economic conditions was at the lowest level since November 2009. The index was at 73 in early October, compared with 79.6 in September and 79.8 forecast by analysts.
Consumer spending typically accounts for about two-thirds of U.S. economic activity and is considered critical to the recovery. It's especially watched in the months ahead of the U.S. holidays, a key period for retailers.
"Personal financial expectations were near their all-time low, and the steep decline in buying plans was related to uncertainty about consumers' future income prospects," the survey's director Richard Curtin said in a statement.
The survey's gauge of consumer expectations rose to 64.6, above last month's 60.9 reading and a forecast for 61.5.
The measure on consumers' 12-month economic outlook rose to 70 compared with 61 in September.
The survey's one-year inflation expectations measure rose to 2.6 percent from 2.2 percent in September, while its five-to-10-year inflation outlook index was unchanged from September at 2.7 percent.
Currencies: The dollar rose against the euro and the British pound, but was flat versus the Japanese yen.
The U.S. dollar index, (DXY), which measures the U.S. currency against a basket of six others, edged up 0.4%.
European Markets ended mixed. Germany's DAX rose 0.6%, while the CAC 40 in Paris edged up 0.2%. Britain's FTSE 100 fell 0.4%.
Asian Markets closed mixed. The Hang Seng in Hong Kong fell 0.4% and Japan's Nikkei fell 0.9%. The Shanghai Composite gained 3.2%.
Company Earnings Reports
Gannett Co Inc (GCI)
Gannett Co Inc (GCI) reported on Friday that third-quarter profit rose on a surge in broadcast revenue and cost-cutting, but it slightly missed analysts' revenue expectations.
Third-quarter net income was $101.4 million, or 42 cents per share, compared with $73.8 million, or 31 cents per share for the same period last year.
Excluding items, Gannett posted earnings of 52 cents per share, beating the Street's view of 50 cents per share, according to Thomson Reuters.
Total revenue at the nation's largest newspaper company was flat at $1.31 billion, missing analysts' forecast of $1.33 billion.
Gannett, which also owns TV stations, said broadcast revenue soared 22 percent to $185.3 million. Publishing revenue fell almost 5 percent to $969.4 million.
Charles Schwab Corp (SCHW)
Charles Schwab Corp (SCHW) said on Friday its adjusted quarterly profit rose 9 percent, beating expectations, even as persistently low interest rates and muted client trading weighed on the big brokerage and fund manager.
The online broker earned $124 million, or 10 cents per share in the third quarter, down from $200 million, or 17 cents, a year earlier.
Excluding an expected $94 million in one-time after-tax charges, related to customer fund losses and struggling credit card programs, Schwab earned $218 million in the quarter.
Revenue rose 5 percent to $1.06 billion.
Analysts on average had expected San Francisco-based Schwab to earn 9 cents per share, on $1.06 billion in revenue, according to Thomson Reuters.
Webster Financial Corp (WBS)
Webster Financial Corp (WBS) posted a quarterly profit that beat analysts' estimates, as the top New England lender reported expanded net interest margins and set aside less money for bad loans.
Net income available to common shareholders was $17.8 million, or 22 cents a share for the third quarter, compared with a loss of $26.1 million, or 39 cents a share, a year earlier.
Analysts were looking for a profit of 17 cents a share, according to Thomson Reuters.
Webster set aside $25 million as provision for loan losses during the period, a decrease from $32 million a year back.
Net interest margin -- the difference between what banks earn on loans and pay on deposits -- increased 9 basis points to 3.36 percent.
Shares of the Waterbury, Connecticut-based company, which gained 51 percent so far this year, closed at $17.98 Thursday on the New York Stock Exchange.
WD-40 Co (WDFC)
WD-40 Co (WDFC) reported a better-than-expected quarterly profit helped by geographic expansion of its core brands, and forecast its fiscal 2011 earnings above Wall Street estimates.
"We continue to explore opportunities in multi-purpose maintenance products arena, and expect to launch additional products...over the next two years in various geographic regions," Chief Executive Garry Ridge said in a statement.
The company, which makes household lubricants and cleaning products, said net income for the June-August quarter was $6.9 million, or 41 cents a share, compared with $7.6 million, or 46 cents a share, a year ago.
Revenue rose 4 percent to $80.7 million.
Analysts on average had expected earnings of 38 cents per share on revenue of $76.5 million, according to Thomson Reuters.
For 2010, the company expects to earn $2.25-$2.40 a share on revenue of $340-$355 million.
Analysts on average were expecting earnings of $2.13 a share. The San Diego-based company's shares, which rose over a quarter in value in the last one year, closed at $39.42 Friday on Nasdaq.
Company News and Movements
• Shares of Mattel (MAT) fell 6.5% as investors were disappointed by slumping revenue at the toy maker's Fisher-Price division in the third quarter.
• Seagate Technology PLC (STX) surged 22% after the company said it has been approached by an unnamed party interested in taking the storage-drive maker private, a move that comes as interest in the broad data management sector heats up.
Infosys Technologies Ltd. (INFY)
Infosys Technologies Ltd. (INFY) reported a higher-than-expected growth in net profit for the quarter ended Sept. 30 and raised its profit and revenue forecasts for the financial year ending March 31. The Indian software services firm posted a fiscal second-quarter net profit of 17.37 billion rupees ($393 million), 13.2% higher than in the year-earlier period, as improved demand for outsourced services offset the impact of a stronger rupee. Revenue increased 24.4% to 69.47 billion rupees. The company increased its full-year earnings-per-share forecast to a range between 115.07 rupees-117.07 rupees, from 112.21 rupees to 116.73 rupees previously, and also said it now expects revenue growth to be stronger.
What's more, Infosys said it will pay a special dividend of 30 rupees, in addition to an interim dividend of 10 rupees a share. Traders were looking for the company to post positive earnings results as they grabbed up the stock's calls. The International Securities Exchange (ISE) reported 1.4 calls purchased to open for every one put purchased to open during the past 10 trading sessions. This ratio of calls to puts is higher than 80% of all those taken during the past 52 weeks.
Meanwhile, the put/call open interest ratio comes in at 1.03, which is lower than 90% of all those taken during the past year. In other words, short-term options players have been more optimistically aligned toward the shares only 10% of the time during the past year.
The stock could definitely benefit from a round of upgrades from analysts. According to Zacks, the stock has earned four "buy" ratings, 11 "holds," and one "strong sell." Any upgrades could buoy the shares.
Mattel Inc. (MAT)
Toy maker, Mattel Inc (MAT) posted its third-quarter net profit this morning.
"We continue to be pleased with the performance of the business," said Robert Eckert, chairman and CEO. "While the all-important holiday season is still in front of us, we remain on track to deliver solid revenue and profit growth driven by our portfolio of brands and countries," he added.
Options players will be disappointed with the company's stronger-than-expected results as traders were anticipating a sharp decline in the shares as they flocked to the stock's puts. The International Securities Exchange (ISE) reported 11.6 puts purchased to open for every one call purchased to open during the past 10 trading sessions. This ratio of puts to calls is higher than 99% of all those taken during the past year.
Meanwhile, the put/call open interest ratio for MAT comes in at 0.87, which is higher than 76% of all those taken during the past year. In other words, short-term options players have been more pessimistically aligned toward the shares only 24% of the time during the past 12 months.
Short sellers have also grown more skeptical. During the most recent reporting period, the number of MAT shares sold short increased by 8.7% to 10.1 million. This accumulation of pessimistic positions accounts for nearly 3% of the company's total float.
General Electric (GE)
Before the open this morning, General Electric (GE) released its earnings report.
Heading into the earnings report, options players had high expectations for the shares. The International Securities Exchange (ISE) had reported 2.5 calls purchased to open for every one put purchased to open during the past 10 trading sessions. This ratio of calls to puts is higher than 73% of all those taken during the past 12 months.
Furthermore, the put/call open interest ratio for GE comes in at 0.85, which is lower than 91% of all those taken during the past year. In other words, short-term options players have been more optimistically aligned toward the shares only 9% during the past 12 months.
Short sellers have also unloaded their bearish bets. During the past month, the number of GE shares sold short has dropped by 11% to 64.8 million. This accumulation of pessimistic positions accounts for only 0.61% of the company's float, leaving little sideline money available.
Urban Outfitters, Inc. (URBN)
Pessimism is on the rise toward Urban Outfitters, Inc. (URBN), with options traders rushing to scoop up puts on the trendy retailer. During the past five days, speculators on the International Securities Exchange (ISE) bought to open 10,259 puts on URBN, compared to just 162 calls. The stock's five-day ISE put/call volume ratio of 63.33 confirms a strong skew toward bearish bets over bullish.
In fact, URBN has now earned a 10-day ISE put/call volume ratio of 40.69, as traders have bought to open nearly 41 times more puts than calls during the past two weeks. This ratio ranks higher than 99.6% of other such readings taken during the previous year, revealing that speculators have purchased puts over calls at a faster pace less than 1% of the time.
Likewise, URBN's put/call open interest ratio (SOIR) stands at 1.04, with puts narrowly outnumbering calls among options set to expire within three months. However, this ratio ranks in the middling 53rd annual percentile, indicating that there's still room for pessimism to grow among short-term options players.
In the November series of options, which assumes front-month status on Monday, peak put open interest of 3,484 contracts lies at the 27 strike. Not far behind is the November 28 put, which carries open interest of 3,206 contracts. With URBN trading just shy of $31 at last check, traders are clearly favoring out-of-the-money puts -- underscoring the low expectations for this retail issue.
Elsewhere on Wall Street, short sellers have also been betting against URBN. Short interest climbed by 25.6% during the past month, and these bearish bets now represent a lofty 16.8% of URBN's float. At the security's average daily volume, it would take nearly a week's worth of trading for all of these shorted shares to be covered.
In fact, it seems that only analysts are looking for URBN to outperform. Zacks reports 17 "buy" or better ratings for URBN, compared to just six "holds" and zero "sells." In the same upbeat vein, the equity's average 12-month price target among brokers is $41.50 -- almost one full point beyond URBN's current annual high of $40.84.
After checking out the stock's technical performance, it's easy to see why pessimism is on the rise toward URBN. The shares have shed roughly 11% of their value in 2010, and they've underperformed the broader S&P 500 Index (SPX) by about 14 percentage points during the past 60 sessions.
This intermediate-term decline has been highlighted by resistance at URBN's 10-week and 32-week moving averages. These formerly supportive trendlines have switched roles to act as a stubborn barrier for the shares, and URBN has managed only one weekly finish above this duo since early May.
However, it's quite possible that URBN is close to finding a floor. The round-number $30 region has acted as a cushion for the stock since September 2009, and this area is also home to URBN's rising 20-month moving average.
During the short term, traders should keep a close eye on URBN's progress near $30. If the shares continue to find support here, it could indicate that a technical rebound is on the horizon. A bounce from this level could catch the skeptics off-guard, leaving URBN well-positioned to benefit from an unwinding of bearish sentiment.
The following companies had some impressive options movements:-
Computer Sciences Corp. (CSC)
Computer Sciences Corp. (CSC) was one of five firms to score a five-year pact with the U.S. Department of Defense this week, with the cloud computing concern's slice of the proverbial pie valued at up to $95 million. As such, the shares of CSC have tacked on roughly 5% since the start of the week, luring a slew of call speculators in its wake.
In fact, the stock now sports a 10-day call/put volume ratio of 30.0 on the International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE), implying that traders during the past two weeks have bought to open 30 CSC calls for every put. What's more, this ratio registers in the 87th annual percentile, suggesting that options players have initiated bullish bets over bearish at a faster clip just 13% of the time during the past year.
Echoing that trend, CSC has already seen about 8,600 calls cross the tape so far today – close to 85 times its expected single-session call volume. With October options expiration just around the corner, it appears the bulls are honing in on the November and December 50 strikes, which have seen roughly 3,200 and 1,200 calls change hands, respectively.
With intraday volume exceeding open interest at both strikes, and with more than 90% of the calls traded at the ask price, we can assume that a comfortable portion of today's activity consists of freshly bought bullish bets. By purchasing to open the 50-strike calls, the buyers are expecting the shares of CSC to muscle atop the $50 level by the time the options expire.
At last check, CSC has extended its recent run higher, tacking on 4% to flirt with the $48.85 level. What's more, in light of the security's recent rally, the stock is now in position to finish the month north of its 10-month moving average for the first time since April.
**Bearish activity detected in Santander Finance Preferred SA Unipersonal (STD), with 7723 puts trading, or 4x the recent average daily put volume in the name.
**Bullish flow detected in General Dynamics (GD), with 6373 calls trading, or 9x the recent average daily call volume in the name.
**Bullish flow detected in WellPoint Health Networks (WLP), with 20880 calls trading, or 3x the recent average daily call volume in the name.
**Increasing volume is also being seen in JP Morgan (JPM), Apollo (APOL), and Seagate (STX).
Stocks have been rallying in recent weeks in anticipation the Fed would announce a firm plan at its next meeting, which ends Nov. 3. Lower rates have helped stocks because it drives down yields on Treasury bonds. That makes stocks and other riskier investments like commodities more attractive.
"The Federal Reserve has basically put a floor in the market," said Kevin Mahn, chief investment officer at Hennion & Walsh Asset Management.
The Fed has hinted in recent weeks it would resume a program it ran during the recession to stimulate the economy. Bernanke's comments Friday were the most definitive proclamation yet that the Fed would act. However, he cautioned the central bank is still trying to figure out how big the bond purchase program should be.
Anthony Chan, chief economist at J.P.Morgan Private Wealth Management, said Bernanke successfully walked a fine line Friday between maintaining market enthusiasm over the expected program and avoiding upsetting other Fed board members who might have differing opinions.
“The market has run for a month on Mr. Bernanke saying he might provide more liquidity,” noted Russell Napier, global strategist at CLSA. “It travels on expectations but it can’t travel forever on expectations.”
Napier said Bernanke’s comments indicated the Fed may be considering measures with less magnitude than the level of support investors have been pricing in.
“There would appear — all else being equal — to be a case for further action,” Bernanke said. But as the Fed contemplates doing more, Bernanke said officials “will take account of the potential costs and risks” of pursuing unconventional policies, and anything that is done will be “contingent on incoming information about the economic outlook and financial conditions.”
Bernanke noted inflation was running below the Fed’s objective of 2% and that the economy was on a course to grow too slowly to bring down unemployment. Data released Friday showed the seasonally adjusted consumer price index for September rose by 0.1% from August while the underlying inflation rate was unchanged in September.
Any action by the Fed could have the dual effect of increasing inflation. Bernanke said inflation still remains too low by historical standards. If rates drop and borrowing and spending pick up, prices would rise.
The government said Friday that the consumer price index, a measure of inflation at the retail level, rose just 0.1 percent last month. Prices were flat excluding volatile food and energy costs.
Bond prices were trading in a tight range after Bernanke's speech. The yield on the 10-year Treasury note, which moves opposite its price, rose to 2.58 percent from 2.51 percent late Thursday.
Stocks across the board initially rose after Federal Reserve Chairman Ben Bernanke reiterated that the central bank is ready to do more to stimulate the economy. Bernanke's comments were the latest confirmation the central bank is about to step up its purchase of Treasury bonds to spark growth.
But that burst of optimism couldn't fully overcome worries about how banks like Bank of America Corp. and JPMorgan Chase & Co. handled the foreclosure process on mortgages. Both banks, along with General Electric Co., were the primary culprits in sending the Dow Jones industrial average down more than 30 points.
"The market is not going to continue to rally if financials accelerate to the downside," said Maier Tarlow, a managing director at Raven Securities. "It's a major roadblock."
With several major banks due to report earnings next week, investors are keen to see how deeply the foreclosure crisis has affected their stability.
"To the extent the banks have less capital because they intended to foreclose on these homes, they'll be less able to lend and help the economy move forward," said Manny Weintraub, managing director at Integre Advisors in New York.
"It also makes people nervous about financial products in general. It's just another headache in times when we don't need headaches."
Success is simple. Do what's right, the right way, at the right time.
Take control of your future prosperity the Easy way. Become a member of Stock Options Made Easy today!