Tuesday, July 17, 2012
The QE question will again be on many investors' minds today as
Ben Bernanke testifies before the Senate Banking committee.
Positive earnings reports from
Goldman Sachs (
GS
)
and
Coca Cola (
KO
) and a slew economic reports provide the backdrop for today's
trading action.
Monday's surprisingly weak Retail Sales report provided further
confirmation of economic softness that the back-to-back weak
monthly jobs reports have been showing lately. In prior episodes of
economic weakness - the economy went through such phases in the
Spring/Summer months in 2011 and 2010 - the Fed would save the day
by implementing monetary easing. And that's what the market is
clamoring for this time around as well. The Fed did come through
partly on that count by extending Operation Twist through the end
of the year, but the market wants a fresh round of QE.
Bernanke is not going to announce QE in today's testimony and
nobody expects him to do that. But the market will view Bernanke's
emphasis on 'downside risks' to the economy in favorable light. The
expectation is that Bernanke will come across as dovish in his
comments and may be even discuss some of the policy tools at the
Fed's disposal to stimulate the economy. With inflation effectively
a non-issue, as today's June CPI report shows, and all key economic
indicators pointing down, many expect the Fed to come through with
more easing in its meeting next month. How effective more easing
will be in terms of desirable economic outcomes is an altogether
different issue. And on that score, many doubt if more QE can do
any good given the domestic fiscal issues and global growth
concerns.
Bernanke and economic reports aside, we have entered the thick
of the second quarter earnings season, with this morning's basket
of reports generally in the positive category. We got a solid
earnings and revenue beat from Goldman Sachs despite difficult
market conditions. Coca-Cola also came out of expectations on
volume strength, though
Johnson & Johnson's (
JNJ
)
revenue and guidance were short of expectations, likely due to
currency translation issues. We have
Intel (
INTC
) and
Yahoo (
YHOO
) report after the close today.
Sheraz Mian
Director of Research
GOLDMAN SACHS (GS): Free Stock Analysis Report
INTEL CORP (INTC): Free Stock Analysis Report
JOHNSON & JOHNS (JNJ): Free Stock Analysis
Report
COCA COLA CO (KO): Free Stock Analysis Report
YAHOO! INC (YHOO): Free Stock Analysis Report
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