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Stocks Futures Rise After Two-Day Skid, Claims Data On Tap

Stock futures advanced on Thursday, indicating stocks may rebound after two straight days of declines, ahead of data on the labor market.

* The S&P 500 (.SPX) dropped more than 1 percent Wednesday and has lost 1.9 percent over the past two sessions as concerns mounted that the U.S. Federal Reserve may scale back its bond-buying stimulus before the economy is strong enough to stand on its own.

* The two-day drop for the benchmark S&P index is the worst back-to-back performance since a 2.1 percent decline in mid-April.

* Investors will eye weekly initial jobless claims data at 8:30 a.m. EDT (1230 GMT) for clues on the health of the labor market ahead of Friday’s important payrolls report. Economists in a Reuters survey forecast a total of 345,000 new filings compared with 354,000 in the prior week.

* Wednesday’s ADP National Employment report showed private employers accelerated hiring in May from the prior month, but the gains fell short of expectations.

* S&P 500 futures rose 5 points and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures added 33 points, and Nasdaq 100 futures gained 6.25 points.

* SodaStream International (SODA.O) jumped 8.2 percent to $75 in premarket trading after the Calcalist financial newspaper said PepsiCo Inc (PEP.N) is in talks to buy the maker of home beverage systems for $2 billion.

* Retailers will also be eyed as they report monthly sales results. Costco Wholesale Corp (COST.O) reported May same-store sales that missed analyst estimates, due to a relatively stronger dollar and weak gasoline prices.

* In Europe, Johnson Matthey was the star performer after results as the chemicals firm led European shares slightly higher, with trading expected to remain volatile ahead of the U.S. economic data. (.EU)

* Asian shares tumbled to fresh 2013 lows as growing uncertainty on whether the U.S. Federal Reserve would roll back its stimulus this year kept markets on edge.

By Chuck Mikolajczak

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Bernanke Economy in Fed Centennial Poised for GDP Growth

By Rich Miller & Steve Matthews – Jun 3, 2013 7:55 PM ET
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Federal Reserve Chairman Ben S. Bernanke will leave behind an economy poised to record its biggest advance in almost a decade when he makes his anticipated departure from the central bank early next year.
Growth will accelerate to 3 percent or more in 2014 after averaging an annualized 2.1 percent during the first four years of the recovery, according to projections by forecasting firms Moody’s Analytics Inc. and Macroeconomic Advisers in St. Louis. That would be the fastest rate of expansion since at least 2005, the year before Bernanke became central bank chief.
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While the 59-year-old Ben S. Bernanke, chairman of the U.S. Federal Reserve, hasn’t said whether he wants to remain as Fed chief when his current term expires in January, a majority of investors believe he will depart, according to the latest Bloomberg Global Poll. Photographer: Andrew Harrer/Bloomberg
1:18:48
May 22 (Bloomberg) — Federal Reserve Chairman Ben S. Bernanke testifies about the central bank’s exit strategy from its asset purchase program, the U.S. economy and labor market, and the impact of budget cuts on growth. He appears before the Joint Economic Committee in Washington. (This is the question and answer session of the hearing. Source: Bloomberg)
2:33
May 22 (Bloomberg) –- Federal Reserve Chairman Ben S. Bernanke offers his views on the central bank’s monetary policy, exit strategy and the U.S. economy. Bernanke testifies before the Joint Economic Committee in Washington. Representative Kevin Brady, a Texas Republican and chairman of the committee, also speaks. (Excerpts. Source: Bloomberg)
5:01
June 3 (Bloomberg) — Vincent Reinhart, chief U.S. economist for Morgan Stanley, talks about Federal Reserve monetary policy and the U.S. labor market. Reinhart speaks with Tom Keene, David Plouffe and Sara Eisen on Bloomberg Television’s “Surveillance.” (Source: Bloomberg)
1:04
June 3 (Bloomberg) — Federal Reserve Bank of San Francisco President John Williams speaks to reporters in Stockholm about the potential for reducing the pace of quantitative easing over the next three months. (Source: Bloomberg)
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He has “navigated the economy and the financial system through one of the darkest periods,” said Mark Zandi, chief economist for Moody’s in West Chester, Pennsylvania. “Now we’re starting to see some sunshine breaking through.”
As the Fed celebrates the 100th anniversary of its founding this year, confidence in the sustainability of the expansion is mounting. The stock market is surging, with the Standard & Poor’s 500 Index up 15 percent. Consumer optimism is hovering near a five-year high, according to the Bloomberg Consumer Comfort Index, and April was the fifth consecutive month that home values advanced more than 10 percent year over year, based on data from the National Association of Realtors.
Fiscal fears are fading. The Congressional Budget Office estimated on May 14 that the federal budget deficit will shrink to $642 billion in the year ending Sept. 30, the smallest shortfall in five years.
Departure Anticipated
While the 59-year-old Bernanke hasn’t said whether he wants to remain as Fed chief when his current term expires in January, a majority of investors believe he will depart, according to the latest Bloomberg Global Poll. A third of those surveyed expect he’ll be succeeded by Fed Vice Chairman Janet Yellen, 66, the biggest vote getter in the May 14 poll of investors, analysts and traders who are Bloomberg subscribers.
A step-up to a 3 percent growth “channel” from 2 percent will make it much easier for the U.S. to tackle longer-term issues facing the country, said Vincent Reinhart, a former director of monetary affairs at the central bank.
“Are equity prices fairly valued right now? Can the Fed exit gracefully from quantitative easing? Is the fiscal position of the U.S. sustainable?” asked Reinhart, now chief U.S. economist for Morgan Stanley in New York. “If growth is picking up and we’re on a 3 percent trend for a while, those things all work out. If we’re not, then those things are much harder.”
Dropping Joblessness
The strengthening expansion will push unemployment down and stock prices up. Zandi sees the jobless rate dropping to 6.7 percent at the end of 2014 from 7.5 percent now. At the same time, the S&P 500 will rise to 1,900, David Kostin, chief U.S. equity strategist for Goldman Sachs Group Inc. in New York, said in a research report last month. The stock gauge stood at 1,640.42 (SPX) at 4 p.m. in New York on June 3.
“You are seeing a recovery firing on more cylinders: housing, bank lending, the job market, confidence,” said James Paulsen, the Minneapolis-based chief investment strategist at Wells Capital Management, which oversees more than $340 billion. While this doesn’t mean the growth rate will get a lot faster, it does signal “the recovery has gotten broader” and people “are more confident” it will last.
Cyclical stocks, those that particularly benefit from an expanding economy, probably will outpace the S&P 500 in the second half of this year, he said. These include “industrials, materials, technology and financials.”
Deserve Credit
Bernanke and his Fed colleagues deserve a lot of credit for the upswing, said Robert Shapiro, chairman of Sonecon LLC, an economic advisory firm in Washington.
“Uneven as it is, we are seeing a recovery in the U.S. which draws largely on correct policy, particularly monetary policy, and on the underlying strengths of the economy,” said Shapiro, a former undersecretary in the Commerce Department.
The Fed’s 2009 stress tests of commercial-bank balance sheets were critical in restoring faith in the financial industry and helping clear the way for growth, according to Nariman Behravesh, chief economist at IHS Inc. (IHS) in Lexington, Massachusetts.
And the low interest rates the central bank has engineered through its easy monetary policies play a key role in turning the housing market around, Shapiro added. Sales of previously owned homes climbed in April to the highest level in more than three years, and the median price rose 11 percent to $192,800, the highest since August 2008, from $173,700 in April 2012, the Realtors association reported May 22.
Production Shortfall
Still, the economy is far from full health — a fact that Bernanke himself has acknowledged more than once. The April jobless rate of 7.5 percent was 2.5 percentage points higher than the rate at the start of the 18-month recession in December 2007, according to Labor Department data. Industrial production, as measured by the Fed in inflation-adjusted terms, also remains short of 2007 levels, and manufacturing unexpectedly contracted in May at the fastest pace in four years, based on the Institute for Supply Management’s factory index.
“The patient got very sick,” said Neal Soss, chief economist at Credit Suisse Group AG in New York and a one-time assistant to former Fed Chairman Paul Volcker. “The patient is clearly mending but probably isn’t ready to run a sprint.”
Former Fed Vice Chairman Alan Blinder is concerned that another political standoff over raising the country’s debt ceiling could undercut confidence later this year, he said in an interview. He sees the economy expanding 2 percent to 2.5 percent in 2014.
‘Very Worried’
Blinder, a professor at Princeton University in New Jersey, also said he is “very worried” that financial markets will over-react to signs the Fed is pulling back on its stimulus to the economy and push interest rates sharply higher in response.
The yield on the 10-year Treasury note rose to 2.12 percent at 5:00 p.m. in New York on June 3 from 1.93 percent on May 21, according to Bloomberg Bond Trader data. That’s the day before Bernanke told Congress the Fed could scale back its monthly asset purchases if it were confident the recent improvement in the labor market will be sustained. The central bank currently is buying $85 billion of assets a month.
Yields have risen as confidence grows in the durability of the expansion. That optimism has been fed by the economy’s ability, so far, to weather a federal-budget squeeze the CBO reckons will lop about 1.5 percentage points off growth this year through a combination of spending cuts and tax increases.
“A few months ago, I was on the pessimistic side, given the fiscal contraction,” said Jeffrey Frankel, an economist at Harvard University in Cambridge, Massachusetts, and a former economic adviser to President Bill Clinton. The recent “spate of good news” gives “me real hope that the economy is finally moving into higher gear.”
Payroll Growth
Payrolls rose by an average 196,000 a month from January through April, compared with 183,000 in 2012, and Labor Department data to be released on June 7 will show a further 168,000 increase in May, according to the median forecast of economists surveyed by Bloomberg.
Stuart Litwer, 51, a business analyst in Lilburn, Georgia, for a pharmaceuticals company, is among those feeling more optimistic about the outlook.
“I think it is getting better,” he said. “Home prices are starting to pick up. The deficits are lower than they thought they would be.”
Litwer recently bought a Lexus RX 350 sport-utility vehicle to replace a 13-year-old Honda Odyssey as his wife’s main transportation, after he was close to paying off the loan on a 4 1/2-year-old Honda Accord he drives. “We didn’t want to have two car payments at once,” he explained.
Vehicle Sales
U.S. sales of automobiles and light-duty trucks rose to a seasonally adjusted annual rate of 15.3 million in May, up from 14 million a year earlier, according to Woodcliff Lake, New Jersey-based Autodata Corp.
Responding to the stronger demand, Fiat SpA-controlled Chrysler Group LLC said on May 22 that three of its assembly plants and all except one of its engine, transmission and stamping factories will skip summer shutdown this year.
Nathan Sheets, the Fed’s top international economist from 2007 until 2011, said the expansion is “nearing an inflection point.”
“Headwinds that have restrained growth — deleveraging by households, lagging credit availability and labor-market weakness — are now abating,” and “some powerful tailwinds have taken hold,” said Sheets, who is now global head of international economics at Citigroup Inc. in New York. These include “the surprisingly strong recovery in the housing market — which supports the economy though a whole range of channels – – rising equity prices and robust consumer confidence.”
Business Confidence
What needs to happen next is for businesses to grow more confident in the outlook and boost spending, Sheets and Morgan Stanley’s Reinhart said.
Blinder, author of the recently published book “After the Music Stopped: The Financial Crisis, the Response and the Work Ahead,” said he’d give Bernanke top marks for his handling of the economy since Lehman Brothers Holdings Inc. went bankrupt in September 2008.
The Fed chairman “was dealt a bad hand and he played it well,” Reinhart added.

free-Stock-trading-education

Jeremy Siegel Still Sees Dow 17,000

Stocks have not yet broken out of their long-term upward trend, keeping the Dow Jones Industrial Average (Dow Jones Global Indexes: .DJI) on track to reach an all-time high of 17,000 in 2013, Wharton School economics professor Jeremy Siegel said Friday.
For the market to be down “only a couple of percentage points” was “huge,” he said, calling it “a sign of strength.”
On CNBC’s ” Fast Money ,” the stock market bull said that the market was in a bit of a win-win situation now with regard to the Federal Reserve’s monetary policy.
If economic data remains weak, the market will see it as a sign of continuing quantitative easing, which would be positive for stocks, he argued. In the event of strong economic data, that would bode well for the stock market in the second and third quarters.
“I like the market here,” he added.
The bullish professor of finance maintained his Dow target of 17,000 for 2013. He previously said that the index could hit 18,000 by the end of 2014 .
(Read More: Dow to 18,000!? Very Likely, Says Jeremy Siegel )
Siegel also brushed off concerns about earnings per share.
“I don’t think we should quibble with EPS … because of buybacks,” he said.
Looking at stock price action, Siegel added, “It has not broken the primary trend.”

Free Trading Education

Who is Buying – Share Buyback Cycle ? Stocks Education

The stock market is on a tear, but individuals aren’t buying. Who is so active in the market then?

One clear buyer is the public companies themselves. Public companies have already announced share buy backs almost double from last year and are on a pace to exceed the all-time record in 2007. This level is approaching $290 billion year-to-date already. This is a staggering number and yet we are still focused on the monthly $2-5 billion the individual investor keeps adding and subtracting on a monthly basis depending on the news. Meanwhile, the buying from public companies is relentless. Why should it stop?

Let’s take a quick minute to understand why a company buys back shares. Simply put, the fewer the shares the higher the earnings per share calculation. Another important consideration, the companies also gain further control of their future as they control more of their outstanding shares. Companies also look good to investors as observers feel “if the company thinks their valuation is good, maybe I should buy also”. We are seeing this taking place is almost every sector at this point.

What is fueling this is? Cheap money. Good companies with strong cash flow are usually in the position to buy back shares in the open market anyway. But when you can go into the yield starved market and issue bonds at 1, 2, and 3%, a whole new situation presents itself. Many multi-nationals are now borrowing money below their own dividend payout rates. Good companies can use its borrowed cash to expand operations, target new acquisitions, increase its dividend, and even increase the salaries of management! Why not continue to keep borrowing and buying back shares? As long as the money stays cheap, expect it to continue.

While we continue to hear of complaints that this is a strictly “Fed induced” rally, it is critical for investors to simply understand the current supply/demand equation of anything they are interested in. For those of you involved in the stock market as long as I have, you might remember hearing of a “shortage of shares to buy” several years ago. When I hear that again, expect to hear from me about lightening up on my positions. There will always be new IPO’s and secondary offerings to soak up money when the public gets really excited. Don’t buy into that story!

For now expect to see more of the same. More incredibly large bond offerings from companies that don’t need the cash for operations, more huge fees for Wall St. firms to underwrite and place these low coupon bonds with yield starved clients, more “Strong buy” recommendations for the firms providing the fees to issue the bonds, more share buy backs, higher earnings per share as a result, and a higher overall market. That’s why it is such a virtuous cycle. And expect it to continue as long as money stays cheap.

Wall Street Week Ahead: Good news on jobs may be bad for stocks

NEW YORK – Standing conventional stock market wisdom on its head, investors may wish for weaker-than-expected employment numbers next Friday.
A strong jobs report could prompt an early end to the Federal Reserve’s policy of pumping money into the banking system to rescue the economy and set off the stock market’s long-awaited pullback.
The Fed’s loose monetary policy since the end of 2008 has kept interest rates low and propelled stocks to record highs.
Last week, stocks fell and bond yields surged after Fed Chairman Ben Bernanke said the U.S. central bank may decide to taper its stimulus programs in the next few policy meetings if data shows the economy is gaining traction.
Stocks posted their second straight week of losses on Friday, mostly on fears that the Fed would curb its bond-buying program sooner than most people expected.
“We’re in a mindset where the market seems to be very fearful of the Fed beginning a tapering,” said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.
“Those who are in the market based on easy money … will probably exit” if the May jobs number exceeds expectations, she said.
The market has managed to climb this year without any substantial pullback. Concerns about the Fed’s next move have increased speculation that a major bout of selling is ahead.
A stronger-than-expected jobs number “would continue to produce the concerns you’ve seen manifested in the market over the last couple of days,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia, which manages about $58 billion in assets.
Economists say job gains of at least 200,000 per month over several months are needed to significantly reduce high unemployment.
The Fed has said it will keep interest rates at historic lows until the U.S. unemployment rate drops to 6.5 percent.
Employers are expected to have added 168,000 jobs to their payrolls in May, according to economists polled by Reuters. That’s slightly above April’s count of 165,000 new positions.
The U.S. unemployment rate is expected to hold steady at 7.5 percent in May.
To be sure, better-than-expected jobs data would be evidence of strength in the economy, a positive for the market in the long run, so any pullback could be short-lived, analysts said.
“If it’s a short-term correction, I think that would have to be opportunistic, in the sense that investors should take advantage of moving any sideline money into the equity market,” Luschini said.
Even with the recent losses – the Standard & Poor’s 500 index (.SPX) fell 1.1 percent this week – the index rose 14.34 percent for the first five months of 2013. That gain marked the S&P 500’s best first five months of any year since 1997.
DITCHING DIVIDEND STOCKS
A rotation out of high-yielding dividend stocks has already begun because of the rise in U.S. Treasury bond yields.
Dividend stocks had been among the market’s leaders for much of this year’s rally as investors favored those shares over fixed-income securities in a low interest-rate environment.
“The first crack we’ve seen is, as bond yields have been going up, people are moving out of that area,” said Eric Kuby, chief investment officer of North Star Investment Management Corp., in Chicago.
“Managers are starting to look at things other than consumer staples with nice dividends and stable businesses. So within the stock market, you’re seeing more volatility within sectors.”
The S&P 500 gained 2.1 percent for the month of May, while the S&P utilities sector index (.SPLRCU) lost 9.6 percent and the S&P consumer staples index (.SPLRCS) dropped 2.4 percent.
The spread between the S&P 500 dividend yield and the 10-year U.S. Treasury note’s yield this week hit its narrowest in about a year. The S&P 500 dividend yield was at 2.39 percent, while the 10-year note’s yield hit 2.235 percent during the week.
By comparison, the dividend yield on the utilities sector stands at about 4 percent.
The move out of dividend-paying and other defensive shares should continue as the economy improves, Kuby said, though he pointed out that the market is still a “long way” from seeing high interest rates.
“The fact that rates are likely to creep up over time, that’s a given. And it’s not going to be sudden or dramatic. It’s going to be more gradual.”
IT’S RAINING NUMBERS
Next week will bring a snapshot of U.S. manufacturing activity from the Institute for Supply Management, which releases its May index on Monday. Economists polled by Reuters expect a reading of 50.5 for May, compared with 50.7 in April.
Monday’s economic agenda also calls for April construction spending – forecast up 0.8 percent after a drop of 1.7 percent in March.
Domestic car and truck sales for May, also expected on Monday, are projected to have increased to 15.1 million units from April sales of about 14.9 million units, the Reuters Poll showed.
The U.S. international trade deficit, set for release on Tuesday, is forecast to have widened slightly to $41 billion in April from $38.8 billion in March.
A preview of the jobs picture will come on Wednesday with the release of a report from payrolls processor ADP. Economists polled by Reuters have forecast that the ADP data will show private-sector employers added 165,000 jobs in May, compared with 119,000 in April.
Wednesday’s numbers to watch will include the ISM’s release of its U.S. services-sector Purchasing Managers’ Index for May. A reading of 53.4 is forecast for May, up from April’s 53.1.
The Fed’s Beige Book is expected on Wednesday afternoon. That report will give a look at the economy in 12 regional Federal Reserve bank districts.
On Thursday, initial claims for unemployment benefits will grab attention – on the day before the big payrolls report from the U.S. government. Initial jobless claims are projected to have slipped to 345,000 in the week ended June 1 from 354,000 in the previous week.

U.S. stocks fell sharply Friday afternoon as Wall Street closed another month of gains with a whimper after mixed economic reports.

“We’ve had a week of mediocre news for the United States; not a soft patch, not concerning, but certainly not inspiring,” said Jim Russell, senior equity strategist for U.S. Bank Wealth Management in Cincinnati.

DJIA 15,115.57, -208.96, -1.36%

Dow average on Friday
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Dow average on Friday
“We would like to see a quiet summer, where the market marks some time and consolidates some recent gains,” added Russell of Wall Street’s advance, which put the Dow Jones Industrial Average (DJI:DJIA) ahead 1.9%, the S&P 500 index (SNC:SPX) up 2.1%, and the Nasdaq Composite (NASDAQ:COMP) up 3.8% for the month.

After rising 67.8 points, the Dow Jones Industrial Average (DJI:DJIA) ended down 208.96 points, or 1.4%, at 15,115.57, its steepest drop since mid-April. The selloff accelerated late in the session:about 30 points of the Dow’s 209-point slide came in the last minute, FactSet data show.

Intel Corp. (NASDAQ:INTC) led gains that included just two of the blue-chip index’s 30 components. Intel’s gains came a day after Reuters reported Samsung Electronics had picked an Intel processor to power a new version of one of its tablets.

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The S&P 500 index (SNC:SPX) declined 23.67 points, or 1.4%, to 1,630.74, with health care and energy hardest hit among its 10 industry groups.

Financials have performed the best in May, followed by industrials and technology, with investors rotating in and out of sectors in search of bargains.

“With interest rates being revalued, stocks are being revalued too. We haven’t seen the ‘great rotation’ (out of bonds and into stocks), but we are seeing rotation within the stock market itself,” said J.J. Kinahan, chief strategist at TD Ameritrade.

The S&P 500 marked seventh monthly advance, its longest monthly winning streak since one ending in September 2009. The Dow industrials recorded their sixth straight monthly gain.

“I think bulls would consider it a victory to come out of today with even a small loss. There has been so much pressure from Asia all week, and yet the S&P has hung in there,” said Kinahan.

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The U.S. dollar (NYE:DXY) on Friday fell to a three-week low against the Japanese yen (ICAP:USDJPY) , with the American currency notching an eighth straight month of gains versus the yen. Expectations of monetary easing moves by the Bank of Japan is expected to result in further softening of Japan’s currency.

The Nasdaq Composite (NASDAQ:COMP) lost 35.38 points, or 1%, to 3,455.91.

For every stock rising, more than five fell on the New York Stock Exchange, where more than 1.1 billion shares traded.

Composite volume topped 3.9 billion.

Equities had shed their losses and turned higher after the release of the Thomson Reuters/University of Michigan’s final index of consumer sentiment, which climbed to 84.5 for May, topping forecasts and hitting its highest level since 2007.

“The consumer sentiment is very encouraging for the market overall; we had a quick bounce when that number came out,” said Kinahan at TD Ameritrade.

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Next 24: Bernanke, ISM, Ford
Federal Reserve chairman Ben Bernanke and Fed vice chairman Janet Yellen speak this weekend. The market prepares for manufacturing data from China and the U.S. Laura Mandaro has a look at market-moving events to watch before Monday’s open and in the week ahead. Photo: Getty Images.

Casting the largest chunk of the U.S. economy on uncertain footing, the Commerce Department on Friday reported household purchases declined 0.2% last month, following a 0.1% rise in March; incomes were static.

Equity futures held their drop after the spending report.

Separately, the Chicago PMI jjumped to 58.7 in May, its best reading in more than a year.

“The numbers paint the same picture we’ve seen for a while. The economy is growing, albeit we’d love 5% GDP, but the 2.5% GDP is a fine level; most CEOs say they can continue to make money,” said Kinahan.

Dell Inc. (NASDAQ:DELL) rose 0.6% as founder Michael Dell, the computer maker’s board of directors and its private-equity partners faced a lawsuit by shareholders contesting Dell’s effort to take the company private.

Dell on Friday urged shareholders to vote for the $24.4 billion buyout offer led by CEO Dell at a special meeting July 18, calling it better than other options.

Among movers, Krispy Kreme Doughnuts Inc. (NYSE:KKD) climbed after the doughnut maker beat first-quarter profit and revenue estimates and raised its outlook for the year.

U.S. stocks gained on Thursday as reports on economic growth and jobless claims heightened thinking that the Federal Reserve would continue its level of monthly bond purchases.

The central bank’s monetary easing is a major factor in the bull market, now in its fourth year.

Wall Street retreats from record levels on Fed worries

traders-togetherBy Angela Moon
NEW YORK  – Stocks retreated from record levels on Wednesday on concerns that the U.S. Federal Reserve may start to ease up on its economy-boosting stimulus program.
The retreat was broad across all sectors, with telecoms and utilities companies, considered high dividend-paying stocks, among the day’s top decliners.
The decline in equities also followed a sudden move in U.S. Treasuries on expectations that the Fed will begin to pare its monetary stimulus as the U.S. economy improves.
“High yield stocks did well for most of the year but we are seeing a rotation towards cyclical stocks, which tend to outperform when the economy is improving. That ties with concerns that the Fed may wind down the stimulus earlier-than-expected,” said Jack De Gan, Principal and Senior Advisor at Harbor Advisory in Portsmouth, New Hampshire.
“If they do, that means that the Fed is seeing the strength in the economy that the public isn’t seeing which is the good thing. But with the market at these levels, traders are looking for any excuse to take some profits and today is a very good reason.”
The Dow Jones industrial average (.DJI) was down 137.08 points, or 0.89 percent, at 15,272.31. The Standard & Poor’s 500 Index (.SPX) was down 14.20 points, or 0.86 percent, at 1,645.86. The Nasdaq Composite Index (.IXIC) was down 24.45 points, or 0.70 percent, at 3,464.44.
The S&P telecoms sector index (.SPLRCL) lost 2.2 percent and utilities sector index (.SPLRCU) fell 2.1 percent. Investors have been favoring high-dividend stocks over fixed-income securities in a low interest rate environment.
Supportive monetary policies from central banks around the world have lifted equity markets this year, with the S&P 500 up more than 15 percent. On Tuesday, stocks soared and the Dow closed at a record high after the Bank of Japan and European Central Bank reassured investors that policies designed to boost economic growth would stay in place.
While strong corporate earnings have also contributed to the equity surge in 2013, central bank stimulus has encouraged investors to add to positions as stocks dipped, limiting selloffs. Any change to the stimulus program may prompt a round of profit taking.
On the Dow, 24 out of 30 stocks were negative by midday. Verizon Communications Inc (VZ.N) was the top decliner on the blue chip index, off 3.1 percent at $49.22.
The benchmark 10-year U.S. Treasury note was up 5/32, with the yield at 2.1492 percent.
In company news, Smithfield Foods (SFD.N) surged 25 percent to $32.48 after China’s Shuanghui Group agreed to buy the company for $34 a share.
SLM Corp (SLM.O) rose 3 percent to $23.65 as the S&P’s biggest percentage gainer after the student loan provider said it would split the company into two publicly traded entities and named John Remondi its chief executive officer.
Trina Solar Ltd (TSL.N) slumped 11 percent to $6.06 after reporting its seventh straight quarterly loss.

Central bank support pledges boost shares and dollar

By Richard Hubbard – Free Trading Education and Content
LONDON – Investors seized on clear signs of policy support from Japanese and European central banks on Tuesday to drive world shares higher, denting appetite for safe-haven German bonds.
The better sentiment also put Wall Street on course for a higher open when trading resumes after Monday’s holidays in the major centers. All three major stock indexes ended last week in negative territory for the first time since mid-April. (.N)
Heightened expectations the U.S. central bank could soon taper its stimulus program unleashed turbulence across the markets last week, leaving it to central banks in Japan and Europe to reassure investors their liquidity taps remain open.
“I expect the major markets to test resistance levels of last week as investors are still seeking higher highs and new record levels in the near term, whilst the central banks are continuing their quantitative easing operations,” said Tom Robertson, senior trader at Accendo Markets.
Equity markets around the world have traded at their highest levels in years encouraged by cheap funding from the Fed and other central banks. But comments last week by Fed chairman Ben Bernanke suggesting a U.S. recovery could bring a shift in policy have made investors question prospects for further gains.
“We have had a significant move higher and now it’s time for taking stock and deciding whether we continue to go higher or we are due a correction,” Michael Hewson, Senior Market Analyst at CMC Markets said.
The question is being asked most about the Japanese market, where the Nikkei stock index had reached a 5-1/2-year high before dropping 7.3 percent last Thursday – its largest one-day loss since the March 2011 earthquake and tsunami. (.T)
The Nikkei (.N225) steadied on Tuesday, ending 1.2 percent higher after long-serving board member Ryuzo Miyao said the Bank of Japan would fine-tune market operations to ensure its unprecedented easing campaign is not derailed.
Central bank officials lifted sentiment in Europe, where the broad FTSE Eurofirst 300 index (.FTEU3) rose over 1.3 percent by mid-morning, adding to Monday’s 0.3 percent rise. European Central Bank Executive Board member Peter Praet said the ECB could still cut interest rates further to stimulate the economy if needed.
Tuesday’s rebound took Germany’s DAX (.GDAXI) up 1.1 percent to near recent record highs. In London, the FTSE 100 index (.FTSE) was up 1.67 percent, led by banking stocks.
MSCI’s world equity index had risen 0.3 percent by mid-morning, reversing four days of losses.
SAFETY ABANDONED
Assets seen as safe havens fell, leaving the dollar up 0.7 percent against the Swiss franc at 0.9697 francs. “The yen and Swiss franc have dropped noticeably this morning, essentially because risk assets seem to be stabilising,” said Societe Generale currency strategist Alvin Tan.
The euro was down 0.2 percent at $1.2910 against the dollar, trading well within its recent range of $1.28-1.32.
Investors also deserted German government bonds although the talk of an ECB rate cut lent support. The yield on the 10-year bond was down 1 basis point at 1.43 percent.
Commodity markets remain pressured by an uncertain demand outlook after U.S. and Chinese data last week.
The rising dollar also makes some dollar-based commodities more expensive for non-dollar holders. Spot gold was down 1 percent to $1,380.50 an ounce.
However the better tone on equity markets and signs of rising Middle East tension support oil. U.S. crude futures gained 0.7 percent to $94.78 a barrel and Brent rose 1.4 percent to $104 a barrel.

investing-education-ben-bernanke

Bernanke Dares You To Buy Stocks – But Most Retail Investors Aren’t Biting

investing-education-ben-bernankeInvesting Education – Federal Reserve Chairman Ben Bernanke reiterated this week the message he has been sending for months about interest rates, the economy and the stock market.

Oh, it was couched in rhetoric and Fed-speak, but his message to average investors came through loud and clear: “I dare you to invest in stocks.”

No, Bernanke did not use those words, but the Fed’s actions and the chatter around them make that message unmistakable.

Combine an interest-rate environment where savers get virtually nothing with a stock market at all-time highs and a general nervousness about what will happen to that market when the Fed finally stops stepping in to prop up the economy and you have to wonder if investors have the nerve to throw more money at stocks.

Then add in Bernanke’s hint that the Fed’s rate of bond purchases could slow “in the next few meetings” and he just double-dog dared you to put more money in the market, knowing that the market will react to the end of quantitative easing the way most of us respond to food poisoning.

This reaction could be short-lived, however, and by floating that trial balloon this week, Bernanke may have been testing the waters, trying to see just how much the market reacts. The more it reacts now —— the more the big institutions start to anticipate a change in policy and price it into their plans — the less likely it will react with some long-running shock when the real moment arrives.

Plenty of average investors have taken Bernanke’s dare, which has simply grown stronger and more brash since the financial crisis of 2008. That said, while statistics show money flowing into equities, most of that has been from big institutions, and there hasn’t necessarily been some huge outflow from the fixed-income side of things, so there are a lot of people who haven’t responded to his actions yet.

“The majority of individual investors aren’t biting,” said Greg McBride, senior financial analyst for BankRate.com. “In April, Bankrate.com found 76% of Americans are not more inclined to invest in the stock market now, despite record low interest rates.”

For the investors who are in, Bernanke’s dare is something they had already factored in. For the rest of the investing public, they’re balancing all of the worries that have kept them out until now, most notably balancing the idea of a market at record highs with all of the conditions that make them nervous that a correction — or something much worse — is coming.

“You don’t want to be in or out based on emotions or flows, but on fundamentals,” said Barbara Marcin, manager of the Gabelli Dividend Growth fund GBCIX -0.17% . “The overall fundamentals of the market are mediocre right now, you can’t get too excited. So while the Federal Reserve has intended to hold the risk-free rate to practically nothing to offer investors no choice but to invest in stocks if they want a return … the average individual hasn’t poured in.”

“Traditionally, the market doesn’t form a good top until everybody is in, and that certainly hasn’t happened yet, but anyone who is getting in now has missed a tremendous run and may be getting in mostly because they feel that they have no real choice because they can’t get a real return anywhere but the market,” she added.

While it’s easy to find analysts touting the market’s solid prospects, investors are still having a tough time getting over the market’s travails of the last decade-plus. Cyclical swings don’t just batter account statements, they damage people’s confidence to stay in the market; it’s hard to stay invested — or even be invested — in a market that delivers its long-term returns in such an uneven way.

And yet for individuals, capturing the long-term return is the point.

No one has a good answer on how to do that without taking Bernanke up on the dare.

“Individual investors are starting to come into the market some, which I hate to see now that the market is at a high,” said Jeffrey Hirsch, co-author of the Stock Trader’s Almanac. “It would have been better last fall, when we had a major buy signal, or at some other time. But there’s always going to be a time that might be better, the problem is that if you just missed the last good time to get in the market, how do you know you will recognize the next ‘best time.’

“With the Fed providing a tailwind of liquidity,” he added, “I don’t think there will be a downdraft until Bernanke takes the punch bowl away. … But investors who want to take a chance now need to keep perspective on the risk versus the reward.”

Clearly, balancing risk requires diversification, not going all-or-nothing on Bernanke’s wager. It also means looking at the market not entirely in terms of percentages, but in real-dollar terms.

Hirsch noted that an investor with $10,000 looking to gain a 5% return is talking about adding $500 in annual returns compared with keeping the money on the sidelines. The discrepancy gets a bit bigger when adjusted for inflation.

“The question is whether that $500 is going to make it for you,” he said, “because if it’s not — and you’re too nervous to be in the market — you could still find yourself better off if you save more, or change your spending or doing something else that lets you invest more comfortably.”

Comfort is something the current market is not giving investors, even as it continues to play around with new highs. Investing into discomforting times — though historically profitable — is hard.

Ben Bernanke knows that.

If you’re not going to take his dare, planning around it is crucial. And if you are going to take him up on the challenge, you won’t want to be the last one to do it, because someone is going to wind up losing in this challenge, and it is most likely to be the ones who only accept Bernanke’s gamble right before he changes his provocation to something different.

By Chuck Jaffe

Wall Street Week Ahead: Correction talk gets old as rally sails along

By Angela Moon

NEW YORK traders-together – With the broad S&P 500 Index (.SPX) gliding once again into uncharted territory and posting four straight weeks of gains, the talk of Wall Street’s rally inevitably hitting a ceiling is starting to get old.

Concerns about a technical correction have been a hot topic for weeks, especially as the rally accelerated in May – the S&P 500 is up 4.4 percent so far this month and up nearly 17 percent for the year. But as the three major U.S. stock indexes inch higher and higher to set record after record, many analysts are shrugging off the pullback worries.

“There isn’t a technical level that we have in mind at this point when making decisions. The momentum is really strong, and riding along that momentum is what we should have in mind at this point,” said Cam Albright, director of asset allocation at Wilmington Trust Investment Advisors in Wilmington, Delaware.

The S&P 500, which rose above the 1,600 level only about two weeks ago, is now less than 40 points away from 1,700.

As the market continues its upward move, some market participants are beginning to believe that the rally is not a bubble but rather the start of a new bull market. Others argue, meanwhile, that the strong momentum is not based on fundamentals like economic data or corporate earnings but is relying heavily on easy monetary policy from global central banks.

Regardless, the consensus in the short term is that the market will avoid two of Wall Street’s most popular maxims – “sell in May and go away” and “summer doldrums” – and maintain the upward momentum.

With earnings season coming to a close, next week’s focus will be on the U.S. Federal Reserve. Chairman Ben Bernanke will head up to Capitol Hill on Wednesday morning to testify on the economy before the Joint Economic Committee. The minutes from the Federal Open Market Committee’s most recent policymaking meeting on April 30-May 1 will be released on Wednesday afternoon.

Preparations for the Memorial Day holiday on May 27 will probably cut trading short, and most market action is likely to be completed by mid-week. Lighter trading volume may also trigger slightly higher market volatility.

FEAR NO MORE

Along with the S&P 500, the Dow Jones industrial average (.DJI) has been setting a string of record highs. The Dow has gained 17.2 percent for the year. The Nasdaq Composite Index (.IXIC) is up 15.9 percent for 2013 so far. On Friday, the Nasdaq closed at its highest level since October 2000.

Even at these levels, a popular options gauge shows investors are placing optimistic wagers on the stock market, positioning for the current run-up to extend for the next three months.

Earlier this week, the Credit Suisse Fear Barometer, known as the CSFB Index, fell 11.4 points over the past two weeks – the largest decline on record – and is now at a one-year low of 21.73.

The indicator essentially tracks investors’ willingness to pay for downside protection with zero-premium collar trades that expire in three months, using S&P 500 index (.SPX) options.

“It’s unusual to see at these levels that there are very few indications (based on options activity) that investors are expecting a pullback,” said Randy Frederick, managing director of active trading and derivatives at Charles Schwab in Austin, Texas.

The CBOE Volatility Index, or VIX (.VIX), Wall Street’s fear gauge, is down more than 1 percent for the week.

The options market is a popular place for investors to hedge against a sudden fall in the stock market. Among the most popular strategies are put options on the S&P 500 index, and call options on the VIX, which generally moves inversely to the S&P 500.

“Even if we see 1 (percent) to 2 percent decline, that will be just another opportunity for people to get into the market,” Frederick said.

Next week’s economic indicators include existing home sales for April on Wednesday, followed by weekly jobless claims and new home sales for April on Thursday, and durable goods orders for April on Friday.

In earnings, a number of retailers’ results are expected next week, including Home Depot (HD.N), Best Buy Co (BBY.N) and Lowe’s Companies (LOW.N).