The markets decide that no news from the Fed at Jackson Hole isn't a bad thing

08/26/2011 4:33 pm EST


Jim Jubak

Founder and Editor,

From half empty to half full.

That pretty much describes the reaction of U.S. stocks to Federal Reserve chairman Ben Bernanke’s speech today at the Jackson Hole gathering of the world’s central bankers.

The first reaction was a 221-point drop in the Dow Jones Industrial Average as investors expressed disappointment that Bernanke hadn’t announced anything dramatic. No new program of buying Treasuries as part of a new round of quantitative easing, for example. If you were looking for something to drive interest rates even lower at the long end of the yield curve in order to stimulate a flagging U.S. economy and make stocks even more attractive in comparison to bonds, you were disappointed.

But then the market apparently decided that it was a good thing if Bernanke thought the U.S. economy was strong enough so that the Fed didn’t need to do anything big..And that lead the Dow Industrials and the Standard & Poor’s 500 to rally. At 1:30 p.m. New York time the Dow was up 1.3% and the S&P 500 was up 1.5%.

In his speech Bernanke noted that the Fed still had policy options but then didn’t indicate that the Fed was about to use them. Economic data—such as July’s increase in durable goods orders—don’t show the U.S. headed to a recession, he said.

“The growth fundamentals of the United States do not appear to have been permanently altered by the shocks of the past four years,” Bernanke said. “It may take some time, but we can reasonably expect to see a return to growth rates and employment levels consistent with those underlying fundamentals.” Economists project that GDP will grow by 1.8% this year, according to a survey by Bloomberg, and 2.4% in 2012.

Half empty/half full isn’t exactly a recipe for a steady trend in one direction or another. Next week brings the monthly payrolls and unemployment numbers on Friday. I expect volatility going into that report as investors play another round of half-full/half-empty.

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