Sunday, August 28, 2011

US markets rise on Bernanke statement

US markets rose on Friday on Federal Reserve Chairman Ben Bernanke's statement from Jackson Hole. After opening 4 points lower on Friday, the Dow fell 220 points on a lack of action from Ben Bernanke. However, the Dow rose after investors became hopeful of QE3, due to Bernanke extending the Fed meeting next month to 2 days. The Dow rose 134.72 points or 1.21% at 11,284.54. The S&P 500 gained 17.53 points or 1.51% at 1,176.80.

For the week, the Dow gained 4.3%, while the S&P 500 climbed 4.7%. US markets received a boost all week, as investors looked forward to Ben Bernanke's statement on Friday. However, all week analysts and economists were downplaying the likelihood of a QE3 to be announced on Friday, which decreased the market's expectations.

Initial jobless claims worse than expected

On Thursday, the initial jobless claims report showed claims rose 5,000 to 417,000, worse than the 410,000 that economists expected. In addition, initial claims in the week before were revised up to 412,000 from the previously-announced 408,000

Buffet invests in Bank of America

Bank of America had been plagued by bad news in recent weeks. On Monday, its shares were at $6.03, down 40% from $9.71 on August 1st. However, Warren Buffeted announced a $5 billion investment in Bank of America preferred shares on Thursday. As a result, the bank's shares rose 15%, and shares of other US banks gained as well.

Greece Bailout in Doubt

Finland reached an agreement with Greece early this week, in which Greece deposits $500 million euros into a Finish national account, as collateral for Finland helping other euro zone nations to bail out Greece. However, this will cause other nations to try to reach similar agreements with Greece, which throws into question the effectiveness of the euro zone bailout of Greece.

Durable goods orders impresses

On Wednesday, US July durable goods orders rose 4% over the June level, which was higher than the 2% increase expected. This helped to alleviate some double-dip recession concerns.

China manufacturing reading rises

On Tuesday, HSBC's China August PMI showed a reading of 49.8, which was a slight increase over July's 49.3. Although it was below 50, indicating contraction, it indicated that a hard landing is unlikely for China.

Rebels in Libya capture Tripoli

Oil fell after rebel forces fighting against Gaddafi captured Tripoli. Brent Crude settled on Monday at $108.36. However, as the week went on, analysts and traders realized that it could be 1-2 years before Libya reached full oil production. On Friday, Brent Crude was higher, settling at $111.36.

Gold surges past $1,900

Amid concerns about a double-dip recession, and hope for QE3, gold surged this week past the $1,900/ounce level. After the quick surge, gold corrected by about 8%. On Friday, gold futures settled up 1.93% at $1,797.30.

Using a strategy outlined in my e-book Gold Investing Mastery Guide, I decreased my positions in Barrick Gold and Goldcorp by 25% each, as the former reached C$52.23 and the latter reached C$53.85 on Monday. I also sold all my holdings of the SPDR Gold ETF, GLD, as gold hit $1,900. The rise was clearly too quick, making the metal prone to a correction. However, my outlook for gold is still very positive, with gold reaching $2,100 being a possibility before the end of 2011.

Looking ahead to next week

Because analysts and fund managers had talked down the possibility of QE3 for Friday, markets rose on Friday despite Bernanke taking no action. This slightly positive effect of Bernanke's statement is likely to continue next week. However, investors will be paying attention to the August non-farm payrolls, the revised July jobs report and the minutes from the Fed's August 9 FOMC meeting.

Market sentiment is now slightly hopeful, as investors look forward to QE3 during the September 20-21 Fed meeting. However, jobs data next week can have a big impact. Worse-than-expected jobs data would increase concerns of a double-dip recession, sending markets lower and perhaps causing the panic that was seen earlier this month. On the other hand, better-than-expected data would alleviate some double-dip recession concerns. 

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