US stock markets got a good bump on Friday from US Federal Reserve Chairman Ben Bernanke’s much-awaited endorsement of more stimulus action, but still ended lower on a week of lackluster end-of-summer trade.
While Bernanke’s suggestion that the Fed could embark on a third round of quantitative easing (QE3) bond-buying program helped the Friday rebound, it was still his justification — that the economy is really not doing well — that kept a general cloud over the markets.
Trade was flat for three straight days, then sank on Thursday while nearly making up the difference on Friday, rising even before the Fed chief spoke.
The Dow ended Friday down 0.51 percent for the week, to 13,090.84.
The broad-based S&P 500 fell 0.32 percent to 1,406.58, while the tech-heavy NASDAQ Composite ended down a bare 0.09 percent at 3,066.96.
Bernanke and Fed documents had steadily hinted that the Fed could act, raising expectations — though no decision will be made before the Sept. 12 and Sept. 13 meeting of the Federal Open Market Committee, the central bank’s policy board.
However, Bernanke was more glum about the economy on Friday than had been expected.
“The economic situation is obviously far from satisfactory,” he said in a speech in Jackson Hole, Wyoming. “The stagnation of the labor market in particular is a grave concern.”
It was at the same venue two years ago when Bernanke signaled the Fed’s QE2 quantitative easing program, which sent the markets on a 10-month bull run.
However, the economy has faltered since the beginning of this year, and traders have been hoping for more juice from the central bank — though no one is sure it will have the same effect as before.
“Chairman Bernanke’s comments should be taken positively as he indicated a willingness to increase support to the economy,” said Michael James, an analyst at Wedbush Morgan Securities.
James said that QE3 was “more likely than unlikely, based on my reading of his commentary today, and that will continue to be positive for market sentiment next week.”
“We didn’t get a formal announcement for QE3 and the market still remained strong,” Joe Bell of Schaeffer’s Investment Research said. “With some people claiming the rally is dependent on further actions, it’s always a good sign when the market rallies without any Fed actions.”
Confirming that will require more data on the economy, coming up in this week’s holiday-shortened trade — tomorrow is Labor Day.
Tuesday will see the release of the ISM’s manufacturing index for August and data on construction activity in July; on Thursday the ISM’s service sector index comes out.
Friday’s job creation and unemployment figures for August will be the most-awaited numbers, with analysts looking to see whether they echo Bernanke’s sentiment about the jobs market, giving him ammunition to carry into the FOMC meeting to convince stimulus-doubters on the panel.
“With the holiday, it will -continue to be a sentiment-driven market, with an upside bias,” James said. “The labor [report] is going to be the biggest bit of economic data.”