Market Commentary

Equities advanced handsomely
February 25, 2010

Equities advanced handsomely following FRB Chairman’s remarks stating it was the Central Bank’s intent to keep interest rates low to ensure the economic recovery.  Bernanke categorized the recovery as “nascent.”   Private demand “is growing at a moderate pace” and business investment in equipment and software is increasing “significantly” but housing is stagnant and commercial construction is declining “sharply.”

Regarding the labor market, Bernanke stated there are some positive signs but the labor market remains “quite weak” and of “particular concern” is long term unemployment.  The Fed Chief stated monetary policy is “very accommodative so at some point” the Fed will have to begin tightening but such seems at least “several months away.”

Referencing political pressures, the Fed Chief stated the obvious that it is “vital the conduct of monetary policy continue to be isolated from short term political pressures,” while advocating further financial reforms.

In my view Bernanke’s testimony offered little new and he like most is uncertain as to how this recovery is going to continue to proceed given the various crosscurrents and inconsistencies.

Speaking of inconsistencies, the new home sales report for January was a disaster with sales plunging 11.2% to a record annual rate of 309K.  While the weather might have been a factor, I thought there would have been some type of rebound from the previous two months because many rushed to buy homes before the tax credit expired in November.  Sales are down about 23% over the last three months.

Inventories of new home sales rose 1,000 to 234,000, the first increase in 32 months lifting the key inventory to sales ratio to 9.1 months from November’s 8.0 months.  This is the highest level since last May.

Is the new home housing market as moribund as this data and Bernanke suggests?  Is January’s data a one off event?  Pending home sales infers not.  What will tomorrow’s existing home sales suggest?  This market comprises about 90% of all home sales.

Last night the foreign markets were down.  London was down 0.40%, Paris down 0.45% and Frankfurt down 0.16%.  Japan was down 0.95% and Hang Sang down 0.33%.

The Dow should open nominally lower as Moody’s Investor Service warned that Greece’s debt rating may be cut.  The 10-year  is up 7/32 to yield 3.66%.