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Markets

Bernanke - the most influential man in the world

Federal Reserve chairman Benjamin Bernanke probably holds more power and influence, particular in the bond, commodity and stock markets, than anyone else in the world. His pronouncements have the ability to send stock futures plunging or soaring, and even a hint of quantitative easing is enough to blow the S&P 500 and the NASDAQ through the roof.

The chairman will speak today at Jackson Hole, Wyoming at 10:00 a.m. EST - just 30 minutes after trading starts on the floor of the NASDAQ and the NYSE.

Stock futures slid before the bell, with NASDAQ 100 futures dropping 10 points to 2,120 at 8:45 a.m. and S&P 500 futures down 6.9 to 1,150.6 points at the same time. The pessimistic outlook clearly comes - in part - from the Bureau of Economic Analysis' latest real gross domestic product figures . The BEA reported that the U.S. economy grew at an annual rate of 1 percent in the last quarter, an increase from the 0.4 annual rate of the first quarter, but still disappointing.

However, that growth rate puts the economic situation in a grey area that will make it harder for Bernanke to justify further expansionary monetary policies like quantitative easing. Since the consensus is that QE1 and QE2 were largely responsible for the massive stock market rally since March 2009, that makes equity investors jumpy.

The situation is further complicated by Standard and Poor's recent downgrade of the U.S. sovereign credit rating - a move which has not been followed by Fitch or Moody's, and is now generating a lot of political heat .

Investors are now stuck in a bizarre situation where any pessimism about the medium-to-long term credit situation in the U.S. are met with panic in commodity markets and stocks , which then paradoxically drives up demand for Treasury bonds and compresses their yields. Effectively, when S&P took aim at the U.S. creditworthiness, it made borrowing cheaper for the superpower.

T-bills remain the de facto haven, and though alternatives like physical gold and the Swiss franc have gained, every non-dollar alternative still appears to carry greater risks.

For the time being, then, trading will continue to be dictated by the words of Fed chairman - and guessing what he will say will remain the most popular pastime of traders.

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


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