The Fed May Not Help - Ahead of Wall Street
June 07 2011 - 5:06AM
Zacks
With the stock market on a steady downtrend in the face of mounting
evidence of a decelerating trend in the U.S. economy, investors
have again started looking to the Fed for help.
This behavior is nothing new; it has been going on for years. The
Bernanke Put (and the Greenspan Put before that) is just a fancy
name for the expectation that the Central Bank would come to the
market's rescue should the going get tough. The Fed's $600 billion
bond-purchase program, better known as QE2, is just the latest in a
long line of such helpful actions. But with QE2 coming to an end
later this month and short-term interest rates at near-zero levels,
the Central Bank may not be able to comply this time around.
The odds of another round of quantitative easing (QE3) are limited,
if not altogether non-existent. Growing inflation concerns, both
domestically as well as abroad, offset any positives that could
accrue from another round of monetary stimulus. The Fed Chief
himself pointed to this in his maiden press conference.
Also, the political backdrop is a lot less favorable to another
round of quantitative easing than was the case last year when QE2
was unveiled. Equally important, the central bank appears to
genuinely believe that the current growth slowdown is temporary
that will reverse going forward.
Given these reasons, it is unlikely that the Fed will come out with
another round of quantitative easing in response to the current
bout of market weakness. We have the Fed Chief making a major
speech later this afternoon where he will likely explain his
thinking about current developments in the economy.
In corporate news,
International Paper (IP)
announced a hostile bid for
Temple-Inland (TIN),
the cardboard-box maker, for $3.38 billion in cash. International
Paper went public with its bid after it was rejected by the TIN in
private discussions.
Pep Boys (PBY), the auto
parts retailer, came short of expectations in its quarterly results
this morning. The homebuilder
Hovnanian
Enterprises (HOV), reports quarterly results after the
close today.
With nothing major on the economic calendar today, the Fed Chief's
speech later this afternoon will remain in the spotlight.
Reassuring words from Bernanke will likely have a positive effect
on stocks. And who knows? We may have even get a positive trading
session after so many days of losses. But irrespective of what
happens in the market today, the overall trend remains
negative.
HOVNANIAN ENTRP (HOV): Free Stock Analysis Report
INTL PAPER (IP): Free Stock Analysis Report
PEP BOYS M M &J (PBY): Free Stock Analysis Report
TEMPLE-INLAND (TIN): Free Stock Analysis Report
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