US Market in search of direction

Hawkish comments from Federal Reserve Chairman regarding inflation worry stocks

US stocks were in search of direction for the entire day today, Tuesday, 10 June, 2008. Stocks mostly ended lower cautioned by Federal Reserve Chairman, Ben Bernanke’s statement on inflation. Earlier in the day, market received a good boost from the sharp drop in oil prices. But at the end, indices ended mixed with only Dow registering moderate gains, backed by its financial heavyweights. Four of the ten economic sectors posted a gain. The financial sector led the way.

The Dow Jones industrial Average ended the day with a gain of 9 points at 12,289. The Nasdaq Composite Index, finished lower by 10.5 points at 2,448.9. S&P 500 finished lower by 3.3 points at 1,358.

In a speech late Monday, 9 June, Bernanke emphasized the central bank's determination to hold down inflation expectations. The Fed has hinted that it is most likely done cutting rates, and its next move is likely an increase in rates. Market viewed as a signal the Fed will move to tighten monetary policy later this year.

Seventeen out of thirty Dow stocks ended in the green. All the major financial Dow components – Citigroup, AIG, JP Morgan and Bank of America advanced roughly 2% to 3%, providing support for the Dow.

In economic news, the Commerce Department reported that U.S. trade deficit widened to $60.9 billion in April on higher prices for crude oil and other commodities. Imports rose 4.5% to $216.4 billion, while exports increased 3.3% to $155.5 billion. Excluding the impact of inflation, the trade deficit slipped by 0.1% to the lowest level in nearly five years.

Market stated the day in the red. But a recovery in the financials around mid day helped the market gain back momentum and Dow climbed in the positive territory for first time during lunch hours.

The dollar received a boost against major global currencies as Bernanke's remarks stoked expectations that a rate hike could be in store sooner rather than later.

At the currency markets on Tuesday, the dollar index, a weighted measure against the euro, yen, pound and three other major currencies, jumped 1.1%. Federal Reserve Chairman Ben S. Bernanke said risks to the economy have faded, spurring speculation that interest rates will rise.

Strong dollar took crude prices lower today and prices closed lower by more than $3 after rising higher earlier in the day. Generally, a stronger dollar pressures demand for dollar-denominated commodities, such as crude oil and gold, which become more expensive for holders of other currencies. Crude-oil futures for light sweet crude for July delivery today closed at $131.31/barrel (lower by $3.04/barrel or 2.3%) on the New York Mercantile Exchange. Earlier it rose to a high of $137.98/barrel during the day.

Tomorrow, the market will digest the latest inventory report from the Department of Energy, the Fed's Beige Book, which is a report on economic conditions, and the Treasury Budget for May