The afterglow of Bernanke’s ’180-degree turn’:
What Works Now
July 11, 2013, 8:19 AM
Fed Chairman Ben Bernanke appears to have done an about-face on tapering, at least according to some strategists. And markets are eating it up, with stock futures pointing to gains of nearly 1% for the Dow industrials DJIA , S&P SPX and Nasdaq COMP . Read more about bulls buying into QQQ and the ultimate ‘Bernanke trade’.
Here’s how UpsideTrader assessed Bernanke’s speech late Wednesday:
“After the close, Bernanke pulled back on any hawkish rhetoric that he ever spoke and told everyone that rates will be zero until the end of life as we know it on planet earth.”
Well that’s a bit drama heavy, but Bernanke did say this: “There will not be an automatic increase in interest rate when unemployment hits 6.5%.” And, given the weak labor market and low inflation, “it may well be sometime after we hit 6.5% before rates reach any significant level,” the Fed chief added.
“It’s almost as if he did a complete 180 and reversed everything he said over the last few months,” says Adam Sarhan, chief executive of Sarhan Capital. “It’s a pivotal event and very important as the single strongest catalyst this year has been easy money policies from global central banks. We briefly thought it would stop, and then he came out and said it would continue.”
Others said this is old news, and that Bernanke has been saying this, it’s just that now he’s repeating after a bunch of speeches and comments from members and Bernanke threw investors out of the easy-money saddle a bit. (Some say the Fed is about to shoot the economy in the foot.)
Barring some massive miss during earnings season, Sarhan says markets are now back in the saddle of Fed-driven easy money policy that’s been in place since around March and came into doubt around mid-May when Bernanke delivered his first tapering hint. That means it won’t be long before the S&P takes out that 1,687 high. And it’s been a dramatic two weeks for the market Sarhan said. The S&P 500 fell 7% then vaulted 6% over the past two weeks from June’s low of 1,550.
A big move like that might scare some, but Sarhan said this market can take a pullback of under 5% in the near term to digest recent gains.
“Any given time you can pull back, but really the bulls now have 1,687 in sight. If you look at the Russell 2000 RUT , that’s already broken out to a new all-time high, which is a subtle, but very important bullish sign for the market, and shows tremendous risk appetite.”
So what works now? Here’s what Sarhan thinks:
- Any kind of ETF proxy that tracks the market works in the wake of the latest Bernanke comments — the SPDR S&P 500 ETF Trust SPY +1.00%, the SPDR DJIA ETF trust DIA .
- Companies that benefit from easy money policies, such as growth stocks: Amazon AMZN +1.02%, Netflix NFLX +1.71%, Google GOOG , Priceline PCLN +0.86%
- Financials
- Tech stocks, semiconductors
- Transport stocks
These types of companies benefit, Sarhan says, because those who are allocating capital, who drive prices for any market, have basically been given no other option than to go into stocks as the Fed is keeping interest rates artificially low. And those money managers are going to move into U.S. stocks and look at where they can get the best return on equity, says Sarhan. Of course, the unhappy ones on Wall Street will be real-estate investment trusts, utilities, dividend driven stocks.
“It’s all good for stocks, but Bernanke continues to day trade the economy,” adds Upside Trader. “P.S. Buy any and all dips forever. Go get em.”
Oh and gold gcq3 GCQ3 +3.06% is having a wonderful time, but not the dollar DXY +0.08%. Ken Veksler, director of Accumen Management had this to say in hisforex blog:
“Our guess is as good as yours, but we are giving it a red-hot go anyway. It serves the Fed no purpose to have the market as jittery and as USD bulled up as it currently is and with his own exit imminent, Ben sought to put the cat amongst the pigeons. Mission accomplished fella.”
– Barbara Kollmeyer
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