Capital markets participants spent much of the week awaiting Ben Bernanke’s Friday comments from Jackson Hole. As expected, the Fed Chairman strongly suggested there will be more stimulus in the form of bond purchases, but failed to provide any details. Treasuries rose. Europe was relatively quiet this week. Spain chose to delay a decision whether or not to accept a bailout package. Various data points from around the globe pointed toward continued economic malaise. Stocks declined modestly but held on for a third consecutive monthly gain.
S&P 500: 1,406 (-0.3%)
MSCI EAFE: (-1.0%)
US 10 Year Treasury Yield: 1.54% (-0.15%)
Gold: $1,692 (+1.3%)
USD/EUR: $1.258 (+0.5%)
- Monday – Apple filed to prevent Samsung from selling eight smartphones in the US after winning a patent trial in San Jose.
- Tuesday – The Case-Shiller index of home prices in 20 US cities showed its first year over year increase in 20 months.
- Tuesday – Spain’s second quarter GDP fell 0.4% from the previous quarter, in line with expectations.
- Wednesday – US second quarter GDP growth was revised up to 1.7%, slightly above expectations.
- Thursday – Spanish Prime Minister Rajoy said the nation will delay deciding whether to seek a sovereign bailout. European stocks fell.
- Thursday – Mitt Romney officially accepted the Republican nomination for President, using his acceptance speech to share a more personal view of him, and lay blame on Obama for lingering high unemployment.
- Friday – Ben Bernanke delivered a speech decrying the suffering caused by high unemployment and mentioned additional bond purchases as a possible way to help. Stocks and Treasuries rose.
Bernanke doesn’t want to be remembered as the Fed Chairman who failed to overcome the worst stretch of high unemployment since the Depression era. His comments in Jackson make it nearly certain we will get some type of QE3. Less clear is the amount, method and impact. Low rates are unquestionably stimulating the economy, but even lower rates are unlikely to have much impact. Inflation remains in check, but the risks of future inflation are hard to quantify. We prefer not to second guess the Fed, but we are wary of the prospect of taking big inflation risk down the road for what appears to be limited upside with jobs in the short term.
The 2012 Presidential election continues to be, well… uninspiring. The Republican convention came and went with relatively little fanfare apart from an entertaining appearance by Clint Eastwood mocking an absent Obama represented by an empty chair. It is hard to beat incumbents, and we don’t think Romney has generated enough momentum and enthusiasm to do so.
Continued high unemployment provides Romney some hope, but the recent spike in home values should make many voters feel somewhat better about their situation and, by extension, Obama. What’s best for the country and the stock market longer term is open for debate. But if Obama is re-elected as we expect, it should provide a modest short term boost to stocks as uncertainty is removed. Like it or not, we mostly know what to expect from Obama, especially when it comes to support for Bernanke.