EmailTry as it might, the equity market was unable to sustain a rally yesterday. In fact, it rolled over late in the session, relinquishing a 0.8% gain and ending the day with a slight loss.
It is important to note that the bulk of the backtracking occurred before Fed Chairman Bernanke's speech on the economic outlook was released at 3:45 p.m. ET. Even so, it is equally important to note that his speech didn't turn the selling tide in the final 15 minutes of trading either.
The lack of enthusiasm for Mr. Bernanke's view was not a surprise, principally because he didn't say anything all that surprising to alter a mood, and a trend, that has been prevailing for the last five weeks or so.
The Fed Chairman began his remarks with an acknowledgment that U.S. economic growth has been slower than expected so far this year, but that wasn't anything the market didn't already know. On balance, he kept to the party line that (a) commodity-based inflation pressures are transitory (b) the economy should regain momentum in the second half of the year and (c) economic conditions are likely to warrant exceptionally low levels for the federal funds rate for an extended period.
There was no hint of QE3, but anyone truly expecting him to go down that road with this speech was way ahead of themselves.
Alas, the selling trend remains intact this morning.
The S&P futures are 0.2% below fair value, weighed down more we suspect by the inability of the market to sustain a rally yesterday, irrespective of the Bernanke speech, than anything else. Other limiting factors could include reports the World Bank has cut its 2011 global growth forecast to 3.2% from 3.8% and a Moody's warning, according to Reuters, that the U.K. could lose its AAA rating if growth continues to be weak and fiscal consolidation targets are not met.
Separately, McDonald's (MCD) is indicated to open nearly 2% lower after reporting that global comparable sales in May rose 3.1%, which reports indicate was less than expected. That weakness will weigh some on the broader market at the start of trading as will the recognition that the financial sector continues to act very poorly.
In other developments, OPEC is reportedly on the cusp of announcing an increase in its output target, but any agreed upon increase will be seen primarily as a token act that brings the official target closer to current actual output.
--Patrick J. O'Hare, Briefing.com
Patrick J. O'Hare is the Chief Market Analyst for Briefing Research, Briefing.com's institutional research service. To request a free trial please email researchsales@briefing.com.
