After a day of sharp selling on Monday, the major market averages bounced again on lower volume, similar to last Friday's action. Fed Chairman Ben Bernanke's testimony before Congress yesterday soothed the market somewhat as he implied that quantitative easing is here to stay despite politico-speak about slowing or stopping QE before unemployment hits the Fed's target rate of 6.5%. The fragile recovery is actually a fragility bordering on recession, so any disturbances to the flow of QE would likely tip the economy into recession. The UK and Europe are in recession, and since First World economies tend to correlate, the US should also be in recession were it not for the painted statistics on various economic fronts. One must remember that Bernanke is a politician first so he will say what needs to be said to calm markets, and we must not forget that in his infinite wisdom he assured us all that the sub-prime mortgage situation "remains well-contained" back in 2008, just before the sub-prime crisis reached full tilt. Manipulation is common especially among those with a voice such as China which recently talked up the U.S. dollar so they could unload more of their holdings.
Bernanke also warned that automatic federal budget reductions slated to start Friday would impose a “significant” burden on the U.S. economy if politicians are unable to reach a deal to avoid the cuts, which sent markets into the red intraday but then recovered to finish up on the day.
In economic news, the value of U.S. homes rose in the final month of last year, the best gain in 7 years, and the Commerce Department showed new-home sales rose to the highest level since July 2008. Housing stocks consequently recovered most of Monday's steep losses but still have potentially topped given the fundamental backdrop discussed in prior PMP's, and this was confirmed to some extent by the fact that homebuilding stocks that had previously dropped below their 50-day moving averages were unable to regain those key lines despite the positive news.
The Conference Board said its index of consumer confidence climbed to 69.6 this month, well exceeding estimates of 62.3, with the data suggesting that “consumers are weathering the recent storm of higher payroll taxes and rising gas prices reasonably well,” said Jim Baird, chief investment strategist for Plante Moran Financial Advisors, despite the fact that many retailers, including bix-box retailer Walmart (WMT) have indicated that sales slowed sharply in the past two months since "ordinary folks" were hit with payroll tax increases as a result of the Obama Administrations policies.
Fracking sand producer Silica Holdings (SLCA) had a buyable gap-up on strong earnings. Institutional sponsorship has increased over the past four quarters, and its industry group rank is a strong #44 out of 202. The stock closed mid-bar yesterday, but held its earlier intra-day low. One may wish to monitor this stock in the coming days since the market is expressing much selling pressure. Should conditions improve, SLCA is a good stock for one's watch list as a potential buy candidate.
When viewed wiithin the context of the prior days' action, yesterday's bounce appears rather insignificant, and it remains to be seen how far the current correction will carry before any material evidence of the market stabilizing and recovering is forthcoming. Caution remains warranted.