Will Bernanke Show His Hand? - Ahead of Wall Street

By
A A A

Wednesday, May 22, 2013

The Fed remains in the spotlight today as Bernanke testifies before Congress. Investors will be trying to handicap the Fed Chairman's thinking about whether the central bank is moving towards tapering the pace of bond purchases. The dominant view in the market appears to be that the Fed will do nothing to its QE program at the June meeting. But others, myself included, look at the question differently and see the Fed moving towards a change of policy in the near future.

It is reasonable to assume that the views of Bill Dudley, the New York Fed President, mirror those of Bernanke himself. Dudley's comments Tuesday did not indicate that any changes to the QE program were imminent. He essentially reiterated what was in the last post-meeting statement, meaning that the pace of bond purchases could increase or decrease depending on the state of the economy. This makes Bernanke's characterization of current economic conditions in today's testimony very significant for the QE program.

Investors will likely interpret any Bernanke comments about the fragility and weakness of the economy as evidence of no changes to the QE program. We know from prior public comments that Bernanke has been concerned about the potential negative economic impact of the budget sequester. They would like to see GDP growth resume in the third quarter after the slowdown in the current period.
The issue of Bernanke's retirement at the start of next year may or may not be relevant to the future of QE. But the potentially smaller supply of treasury bonds in the coming months as a result of lower budget deficit is a strong argument for tapering the pace of bond purchases. My sense is that the FOMC will move towards changing the QE program at the June meeting after having seen the May non-farm payroll report earlier that month.
We will be getting the minutes of the last FOMC meeting later this afternoon as well that will shed more light on the QE debate from within the committee. But the Bernanke testimony has the potential to steal the thunder from that report.

Bernanke aside, we have underwhelming earnings reports from Target ( TGT ) and Lowe's ( LOW ) this morning while Hewlett-Packard ( HPQ ) reports after the close. We have the usual comments about weather from Target that featured in the weak report from Wal-Mart ( WMT ) a few days back. But the reality is that the payroll tax changes from earlier this year may be a bigger issue for the Wal-Mart and Target shoppers than analysts are factoring in at present. The Lowe's miss shows that the rising tide of the housing market may not be enough to lift the fortunes of all home-improvement retailers. At least that's what we see in the disparity between Home Depot ( HD ) and Lowe's.

Sheraz Mian
Director of Research



HOME DEPOT (HD): Free Stock Analysis Report

HEWLETT PACKARD (HPQ): Free Stock Analysis Report

LOWES COS (LOW): Free Stock Analysis Report

SPDR-SP 500 TR (SPY): ETF Research Reports

TARGET CORP (TGT): Free Stock Analysis Report

WAL-MART STORES (WMT): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report




The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Stocks , US Markets

Referenced Stocks: HD , HPQ , LOW , SPY , TGT

Zacks.com

Zacks.com

More from Zacks.com:

Related Videos

Stocks

Referenced

Most Active by Volume

100,376,898
  • $17.62 ▲ 0.51%
83,231,837
  • $25.62 ▲ 1.91%
75,739,329
  • $111.78 ▼ 0.77%
65,297,937
  • $36.37 ▼ 1.76%
59,053,093
  • $47.66 ▲ 0.29%
53,482,350
  • $2.59 ▼ 0.38%
51,504,284
  • $7.34 ▲ 2.37%
51,434,656
  • $8.14 ▲ 6.96%
As of 12/19/2014, 04:15 PM


Find a Credit Card

Select a credit card product by:
Select an offer:
Search
Data Provided by BankRate.com