U.S. stocks shook off a deep decline in the main gauge of consumer confidence to recoup more ground as FOMC voting member Charles Evans drastically increased expectations that more Fed money pumping is on the horizon.  Further, the dissenters to more easing dropped from three to two as the Minnesota Fed’s Kocherlakota stated he may switch from opposition to consent over subsequent meetings.

Telecoms, basic materials and industrials led the broad market higher.  Financial and utilities closed lower.

Remember yesterday we talked about how the Fed’s continued action to prop the stock market results in a harsh reality for the old consumer, as it means stocks can’t rise without bringing the cost of energy in particular with it – the Fed can’t control where this liquidity goes and if traders believe it will foster inflation they’re going right for the areas where that inflation proves evident.  I also noted that this reality won’t stop the Fed from remaining aggressive and rolling out a new round of QE or some other form of excessive accommodation.

Well, yesterday morning we received strong evidence of such as Chicago Fed Bank President Evans signaled more accommodation is coming as he stated “we need to do more.”  He also stated that Fed policy does not drive commodity prices higher.  Bernanke has said the same thing so the fact that they are unwilling to accept the direct relationship between massive Fed easing and higher commodity prices is really no surprise.

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U.S. stocks rallied for a second-straight session and for the fifth session in six.  The narrative for yesterday’s move was optimism that U.S. growth would accelerate.  This had pretty much been the hope for at least a year now since decelerating back to low 2% growth in at the end of 2010 and now down to below 1% during this year’s first half.  After seeing the data for July and some for August, I don’t see how anyone comes up with this story, but, as I like to say, we’ll see.

Some also pointed to the fact that Irene didn’t inflict the havoc that was expected, but stocks were up on Friday when the uncertainty was still in play, so I’m not seeing that as the reason either.

Financials, industrials and basic materials led the rally.  Telecoms, consumer staples and utilities were the laggards, but the latter two still managed gains of nearly 2%.

Regardless of why the market has bounced again off of the near-term low of 1120 on the S&P 500, the correction has been pared back to a decline of 11.5% relative to the April 29 three-year high – at its worst the decline has been 18%.  Now that we’re back to the top end of the recent range for the third time in two weeks, we may need some real juice to keep this thing going.  We’ll run into some tough data later in the week (confidence, ISM and Aug. jobs report), but with just about everyone now sharing the view that more QE is on the horizon maybe we don’t need economic help.

Unfortunately for the old consumer out there, stocks can’t go higher without bringing the price of fuel along with it – it’s the trap Bernanke currently finds himself in, but it won’t stop him from continuing the aggressive monetary path.  Crude rallied $2 to $87.34/bbl and wholesale gasoline is chillin’ at $2.96 – that corresponds with $3.60 at the pump, which is actually where the national retail average resides this morning.

Can’t go without mentioning something from the Euro scene these days, so we’ll look to Greece where the major stock index jumped 14% on news that the country’s two largest banks will merge (their bonds remain in reality land though as they traded lower).  I’m not sure why this merger, which creates a new largest insolvent bank in that troubled country, is seen as a positive but for at least one day the equity market over there liked it – then again the Athens Composite was down 85% from the four-year high in 2007 so bounces will occur.

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U.S. stocks reversed an early-session sell-off after Bernanke signaled the Fed isn’t going anywhere and additional consideration of further stimulus will occur at the September meeting.  In the early trade, another lower revision to GDP held traders back and as they read the Bernanke speech it took time to get to the part where he states they have extended the September meeting to two days – very much increasing the chances of more accommodation.

Tech, consumer discretionary and basic materials led the rally.  Utility shares were the lone loser as the index that tracks the sector closed lower; telecoms and consumer staples also underperformed by did manage to close up.

The Fed chairman’s much anticipated speech on Friday was pretty much anticlimactic as he not only refrained from announcing more stimulus (via QE or some other nonconventional policy action) but didn’t even lay out the tools that they still have at their disposal – although he’s laid these possible actions out so many times now one can understand why he simply reiterated they have these tools that can be used.

What he did give the market was the continued expectations that the Fed will be there to goose things if the economic course deteriorates, which he explicitly stated they’ll discuss at the September 20-21 meeting – a meeting that they have extended to two days, which is an extraordinary move as these things are usually set in stone.  This was a big signal as it says they’re going to think about action in a more thorough manner than initially was the case.  Further, since it is now evident to all that the economic situation has deteriorated substantially, this was read as a sign that he will further support the stock market if need be (unless by saying they’ll wait for things to play out he means the economy has regressed into actually contraction).

My expectation has been more QE/a shift to more longer-term securities (anticipation of which has driven interest rates to these ultra-low levels) will come by the end of the year or early 2012, but maybe September is the time.  I provide additional comments below.

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As most of you know by now, Fed Chairman Bernanke used the Federal Reserve Bank of KC Economic Symposium in Jackson Hole WY in August of last year to set the table for what we now know as QE2. This year’s conference was expected by some to be a repeat of last year, but this time around the Chairman decided to leave the QE train in the station, for now at least.

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U.S. stocks erased very early gains (a fleeting rally on the Berkshire/Bank of America news) to close lower for the first session in four as traders turned back to a less-than-desirable jobless claims report and waited for the big Bernanke speech. (Odds are he won’t take additional aggressive action just yet, but if he knows the GDP revision, which will be delivered to the public 90 minutes before the speech, has printed sub-1.0% then maybe he will believe the trigger needs to be pulled now.)

Also adversely affecting out market was a mini flash crash on the German bourse (DAX), which pushed other European indices lower late in their session (they close at 10:30 STL time) -- and maybe we can’t call what was a brief 5% move yesterday a “flash” crash as this morning the DAX is back to that flash low.  That market has crumbled by 28% since hitting a near three-year high in April.

Financials, basic materials and consumer staples fared the best.  Industrials, health care and consumer discretionary shares took the biggest hit.

The CRB index closed higher, bucking the decline in stocks, as the precious metals bounced back a bit and wholesale gasoline rallied eight cents to $2.96/gal. (highest level on gasoline since the market really began to slide in early August).

Well, as we’ve seen over the past three years, every time a bank CEO states that his company doesn’t need capital (the latest being BofA’s Moynihan) it means one thing:  They need capital.  As most people know by now, Berkshire Hathaway will invest $5 billion in BofA via 50,000 preferred shares @ 6%.  Oh, and the preferreds have a call option at $105/share (so even if called away from Berkshire they pick up 5%) and Berkshire gets warrants to purchases 700 million common shares at an exercise price of $7.14 (just 2.1% out of the money as of the prior session’s close and one would assume the stock could eventually manage at least a $10 share price unless they ultimately are bailed out by the government).

It surprised me to watch BofA’s shares jumped on this news (even if they closed well off the high of the day) as the terms are so sweet for Berkshire that it makes the bank’s need for capital abundantly obvious.  And then you have the 700 million in warrants that dilute BofA shareholders by 7%.

I find it interesting that this move by Buffett comes just two days after his meeting with President Obama; this drives speculation that the Treasury Department proposed the deal.  Buffett says he came up with the idea in the bathtub and the mainstream media ran with that story – he probably spilled cherry Coke (supposedly his favorite drink) all over himself due to the ensuing laugh-fest he had over their naiveté.

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U.S. stocks extended upon Tuesday’s rally to once again recover some of the losses of the past month.  The S&P 500 Index, since beginning to fall apart in early August, remains bound by 1200 on the upside and 1120 on the downside – a wicked 6.66% range.  We’ve bounced either up or down in this range five times now since August 8.   At this point, the correction (measured from the April 29 three-year high) has been shaved by four percentage points to 13.65%.

Financial, utility and industrials shares led the market higher – financials and industrials were the worst-performing groups of the year prior to yesterday (financials still are the worst).  Consumer staples, energy and tech were the day’s worst-performing sectors. 

Crude, which has shown a strong correlation to the direction of stocks, failed to rise – slipping a few cents per barrel.  Beyond the stock/oil disconnect, crude also bucked the weekly energy report that showed supplies fell more than expected last week. 

Unfortunately, the reason supplies fell was not because consumer demand was up (gasoline demand fell 2.0% last week) but rather because refining rates jumped to the highest level this year as the refining margin (the profit from processing three barrels of oil into two barrels of gasoline and one of heating oil) had jumped to the highest level in at least 25 years – just off that high currently. 

Retail gasoline is still chillin’ at $3.58 – down from the recession-inducing $4 back in May but 90 cents above the year-ago level.  These refining margins will continue to encourage the production of more gasoline though and so long as oil doesn’t ramp up again, the pump price should come down some more as supply outstrips demand. 

Things to watch over the next couple of days are Steve Job Inc. (which trade under the ticker AAPL), Bernanke’s speech tomorrow morning and Hurricane Irene.   AAPL shares are behaving very well this morning, down just 2.65%, after Steve Jobs announced he’ll be stepping down as CEO – he’ll still be around as he becomes chairman -- (anyway, the stock pretty much trades at a multiple that already reflects his departure).  Bernanke will deliver his annual speech from Jackson Hole, just 30 minutes after Q2 GDP is revised down from an already anemic 1.3%.  Hurricane Irene is tracking up the East Coast and models (for what they are worth) have it hammering Long Island and Boston this weekend. 

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U.S. stocks rallied on bad data as another regional manufacturing gauge plunged and juiced traders’ expectations that Mr. Bernanke will signal something big on Friday.  The market was in the process of erasing opening gains until the Richmond Fed printed much worse-than-expected weakness, at which point stocks ramped substantially higher. 

I’m still not convinced the Fed head will pull the trigger just yet as it may take the 2010 low of 1030 on the S&P 500 to make that finger itchy again, but the data is surely increasing his concern.   One thing is evident, by targeting stock prices as a major agenda of his aggressive easing campaign the Fed Chairman makes his job more herculean with each additional round of QE. 

The fact that stocks ramped higher on a big-bang Bernanke announcement was corroborated by activity within the commodity complex – prices up even as factory data continues to point to recession.  Energy, grains, corn and copper all rose.  The precious metals fell, which is a bit strange on a day additional Fed stimulus drove the market – profit-taking I guess. 

Leading the way were energy, tech and consumer discretionary shares.  Utilities and consumer staples most lagged the performance of the overall market.  Financial, which have gotten whipped by 20% over the past month alone, held in well yesterday despite the market treating Bank of America pretty ugly yet again – to borrow the now famous phrase from Texas Governor Perry. 

And on the banks in general, the group is in a really tough spot as they’ve been without revenue growth throughout this recovery.  They’ve counted on loan-loss releases and a wide yield curve to boost profits and recapitalize.  Now though, the yield curve is in an aggressive narrowing formation, sucking away one of their final lifelines.   Of course, they still have loan-loss provision releases to count on…unless recession hits and consumer delinquency rates rise again.  Whoops, maybe releasing all of those provisions wasn’t such a great idea after all.

On the global growth scene, prospects aren’t looking much better than here at home as China’s PMI (factory activity survey) remained in contraction mode and Eurozone PMI fell to contraction for the first time since 2009.  Also, the zone’s ZEW index of economic growth expectations slid 33 points to a reading of -40.0, the lowest level since December 2008 when it was rising from its record low of -63.5 in July of that treacherous year. 

On the good news front, the FDIC’s list of “problem” banks (banks the FDIC sees as having a heightened risk of collapse) shrunk in the second quarter -- the first time since 2006.  The number fell 23 to 865 banks.

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U.S. stocks erased early gains of nearly 2% during another choppy trading day, but the broad market did manage to close fractionally higher after sinking below the cut line on two occasions.  The market continues to retest that 1120 level on the S&P 500, and to this point doesn’t seem to want to plunge below that level on a closing basis (it dipped below that market intraday on August 9 and 10 – it will probably take additional weak data to break that line.

Telecoms, tech and industrials were yesterday’s best-performing groups.  Financials continue to feel the pressure as it was by far the worst-performing sector.  Energy, utility and basic material shares also closed lower.

The market may have gotten a little carried away with its expectations of what Bernanke will say at Friday’s Jackson Hole affair.  U.S. stock index futures were up pretty big pre-market, but traders faded the open and by 11:00 CT the S&P 500 had dipped to negative territory.

Coming in yesterday morning there was plenty of chatter the Fed Chairman would signal the next round of market-goosing QE was on its way via his annual speech from Jackson Hole – just as was the case last year at this time.  However, as the day progressed (or I should say regressed) it became apparent that traders began to switch their assumption, maybe Bernanke will only touch on some options in his speech, holding off on full-blown action until recession is evident – and they may not have to wait that long if ISM (scheduled for release next week) prints deep enough in sub-50 territory, a reading of 45 will send a clear signal technical recession has returned.

This is a funny market though and today is a new day as traders are back on the Bernanke-will-save-us expectation as St. Louis Fed Bank President Bullard dangled that QE carrot in front of everyone in a speech last night.  U.S. futures are up strong, we’ll see if we can hold the gains this time.

On the European scene, the ECB has successfully quelled the sell-off in Spanish and Italian government bonds that hit its crescendo in early August.  What the ECB is doing is what we’ve seen central banks from Britain and the U.S. do for a couple of years now: Buy bonds.

Trichet and Co. have aggressively entered the market and Spitalian bond yields have rallied back to 5% from the perilous 6% (a rate seen as the point of no return for these anemic economies) hit three weeks back.  The problem is the central bank cannot continue to buy bonds for a long period of time without causes even greater disruptions in other parts of the economy, at which point the yields may soar in spring-loaded fashion – rates that will eventually proper-smash these economies if miraculously strong levels of growth do not emerge.

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After beginning Friday’s session higher, the major indices saw those early gains evaporate again to close lower.  This was even without an economic data release, which has been what’s sending traders running for cover lately. 

For the week, the broad market shed 4.69%, marking the fourth-straight week of decline.  At less than four points above the prior week’s low on the S&P 500 (hit Wednesday August 10), the broad market is nearly 18% off the three-year high hit on April 29.

The best-performing sectors naturally remained the traditional areas of safety as health-care, consumer staples and utilities handily beat the market – but all three did close lower for the session. Tech, financials and energy took the heaviest beating – financials are down 23.6% YTD and nearly 30% from the 2 ½ year high the group hit in February.

U.S. stock futures are following European bourses, which are nicely higher, this morning.  We have the Fed Chairman’s annual speech from Jackson Hole on Friday and as we all recall it was at last year’s event in which Mr. Bernanke signaled QE2 was coming, the expectation is that he’ll express some market-enhancing words this go around too. 

With the Libyan rebels all but ousting Gaddafi as they entered the heart of Tripoli yesterday, many people came in this morning expecting crude to plunge, specifically Brent as European crude trades more sensitive to events in Africa (although I don’t understand this logic as it is neither certain the rebels will manage production properly nor a given the next regime that pops up will be any less radical than Gaddafi).  Brent is down just 1.1% to $107.40/bbl and WTI (West Texas Intermediate) is up 1.3% to $83.50/bbl.

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U.S. stocks got hit hard again yesterday as the bounce from last week’s low point has nearly been erased.  It appears we’re in a classic retest of that low, which is 1120 on the S&P 500.

A number of things hit the market yesterday, beginning with a new level of concern regarding short-term funding for the European banking system, the slashing of both domestic and global GDP forecasts and then a Philly Fed report (gauge of factory activity) that showed the second-largest monthly plunge in the survey’s history. 

Utilities, consumer staples and telecoms outperformed, but even these sectors closed lower.  Hit the hardest were basis material, energy and industrial shares, which got smashed by nearly 6%.   Tech and financials didn’t fare much better.

The global growth worries extend beyond Europe and the U.S. as Japanese exports slid 3.3% in July as decelerating U.S./Euro growth and a crazy-strong yen hits Japan hard.  So much for that post-tsunami revival as Japan is very likely to post a fourth-straight quarter of negative GDP on this news. 

One of the big stories of the day was a WSJ article stating that the Fed is keeping very close contact with European banks, specifically regarding their U.S. operations.  The concern is that if European banks run into short-term funding problems (and reportedly some indications of such problems have arisen) then they’ll have to siphon funds out of U.S banking institutions.  The Fed will re-open currency swap lines to ameliorate this problem, but for now the liquidity concerns are rolling.  European banks got hammered as the continent’s bourses took roughly a 4% hit across the board – and down another 2-3% this morning.  This fear has funneled into our markets as financials have led this broad market slide

Wow!  The yield on the 10-year Treasury went sub-2.00% at one point yesterday morning and even as yields backed up a bit from session lows, that market remained on fire as the 10-year yield settled at 2.08% -- down eight basis points.  The yield on the 30-year fell 14 basis points to 3.42% -- and ominous sign. 

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