Maybe Bernanke Should Keep His Big Mouth Shut

by Richard Band | June 8, 2011 4:00 am

Well, someone sure knows how to throw cold water on a celebration! Stocks were putting on a nice rally Tuesday afternoon, with the Dow up 88 points shortly before 2:30 p.m. EST. But then, Federal Reserve Chairman Ben Bernanke stepped to the podium to deliver his “U.S. Economic Outlook” speech in Atlanta, and the market turned tail, shedding all its gains for the session (and more).

The takeaway from this incident? Maybe Fedheads ought to say less in public (nothing at all, if they can help it). Alan Greenspan, in his glory days, was a master at saying nothing while pretending to say something really profound.

However, Bernanke seems committed to his own version of perestroika, as they used to call it in the Soviet era — and his openness bothered Wall Street today. Specifically, traders fretted because Dr. Ben, after admitting the economy has slowed of late, simply predicted that growth would pick up in the second half of the year.

No pledges of another round of “quantitative easing” to follow the Fed’s current $600 billion bond-buying binge, which expires June 30.

In other words, daddy is taking the training wheels off and won’t promise (for now, anyway) to bolt them back on. That may upset some kindergarteners in the investment community, but it doesn’t worry me a bit. Sooner or later, this economy will have to ride on its own, without artificial government “stimulus” schemes. I’m confident it can and will.

Meanwhile, the stock market is well along in its pullback from the April 29 high. As of yesterday’s close, the S&P 500 Index has dipped 5.8% from its peak, so we’re approaching a buy signal for the more aggressive sectors of the market, such as midcaps, small caps and emerging markets. Below 1,282 on the S&P, you can accumulate mutual funds or exchange-traded funds (ETFs) in those areas.

I’m especially encouraged by the price action in emerging markets. Over and over during market “corrections” of recent years, the emerging bourses have tended to bottom ahead of the NYSE.

The same pattern appears to be at work again, with emerging markets strongly resisting the downward tug of the developed markets since mid-May. Anytime the S&P slips below 1,282, you can buy the iShares MSCI Emerging Markets Index Fund (NYSE: EEM[1]).

Back at home, the energy sector is starting to look interesting again. Chevron (NYSE: CVX[2]) stands out as a particularly fine value at less than 8 times estimated 2011 earnings. Whenever you can snag a blue-chip oil giant at a single-digit multiple, you should jump at the chance. The dividend stock currently yields 3.1%.

  1. EEM:
  2. CVX:

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