Stocks fell Wednesday, due to a perception that the Fed Chairman Ben Bernanke has few options left to supercharge a weak economy and that no new action to combat a recession is expected to be announced. Additional pressure was put on the markets by the new jobless claims report that showed initial claims were up by 17,000 more than expected. And topping off the bad news, rumors spread thatGermanymay lose its AAA rating.
Volume yesterday totaled 1.2 billion shares on the NYSE and 523 million on the Nasdaq. Declines on the Big Board showed almost three times more decliners than advancers, while on the Nasdaq decliners were ahead by 4-to-1.
Our internal indicators are still negative, but tell us that a rally is possible from current levels. However, the AAII Sentiment Survey, which is a contra-indicator, saw an increase in bullish sentiment for the third straight week, and that’s negative for stocks.
The most significant chart action was the S&P 500 and Nasdaq’s inability to penetrate their 20-day moving averages. The ability of the S&P 500 and the other broad-based indices to break above this line is a minor step to improving their technical position, but none has yet accomplished it. The market’s response to Mr. Bernanke’s comments could give a hint as to its near-term direction.
Yesterday, I noted strength in the financial sector resulting from the Fed’s plan to hold interest rates low for several years, thus forcing investors into equities that might provide higher returns than bonds. Apparently Warren Buffett agrees, since yesterday morning Bank of America (NYSE:BAC) said that it will get an infusion of $5 billion from Buffett. Buffett will receive preferred stock in BAC along with rights to buy common stock below the current market price.
I’ve recommended several banks recently, as well as two ETFs that are loaded with preferred stocks in banks and other cash-rich companies. The ETFs were the iShares S&P US Preferred Stock Index Fund (NYSE:PFF) and Flaherty & Crumrine Preferred Income Fund (NYSE:PFD). PFF has a yield of over 7%, and PFD yields 8.6%. For those who are interested in a source of unbiased information on preferred stocks and other exchange-traded income investments, go to QuantumOnline.com.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.