When “The Bearded One” speaks, grab a sandwich and pull up a chair. Federal Reserve Chairman Ben Bernanke hit the podium Wednesday and details from the Fed’s latest meeting gave stocks a hefty ride. The Dow finished down 80 points on the central bank’s painful internal fighting. Here’s how it went down…
#1. Bernanke Speech & Fed ‘Minutes’ Rock Stocks
Stocks started the day up… thanks to some kind words from Chairman Bernanke. In his quasi-monthly speech to Congress, Mr. B said the economy was growing moderately, unemployment hit a 4-year low (7.5%), but higher taxes and deep Federal spending cuts by Congress could hamper any economic progress. He implied that the Fed’s popular stimulus policies would remain unchanged.
Stocks fell in the afternooon… after the Fed ‘Minutes’ were released. These details from the Fed’s latest forum in April revealed that many Fed Presidents from different regional branches want to end the quantitative easing policy (keeping interest rates low to stimulate growth) as early as June. They’re worried about inflation and whether QE has even been working.
The takeaway… is that a Fed divided against itself didn’t sit well with investors. Bernanke has said he’ll keep the stimulus gun pointed at the economy’s heart until unemployment hits 6.5%, yet Wall Street’s now afraid that could suddenly change. For the moment, it looks like the house of Ben isn’t in order, but nothing’s changing (WaPo).
#2. HP Earnings Tops Darn Low Expectations
You haven’t used an HP computer… since you were in some depressing middle school computer lab. But that doesn’t mean the struggling company is dead yet. Hewlett-Packard (HP) jumped 13% in after-hours trading Wednesday after a mixed earnings report beat analysts’ absurdly slow expectations (Mashable).
It’s not all PC-pretty… for HP. The earnings report highlighted the problems facing the PC market — shipments of computers dropped even further last quarter. CEO Meg Whitman is doing her best though to turn things around (even in the face of some painful realities — like the fact that we’d bet a lot of cash you aren’t reading this on a HP product).
#3. Saks Hires (Goldman) Sachs To Explore Options
Today, Wall Street was all about sacks… The high end retailer Saks Fifth Avenue (SKS) asked Goldman Sachs (GS) to help explore their future options, or possibility of a leveraged buyout by a private equity firm. The stock rose over 13% on the news, and is up over 30% on the year.
A Leveraged what?… A leveraged buyout, or LBO for short, is when a company is purchased by a group of investors with the use of borrowed money (so banks get involved too). The buyers take on a large debt, with confidence they can kick the company into profitability and sell it in some years at a profit… as grandpa-Vinny says, such-a-deal!
High-end retailers… have rebounded relatively well since that ol’ recession. But even with the recovering economy, fewer are spending more than $500 on a pair of shoes. To bring in shoppers, Saks has been offering sales. But sales cut into margins. Investors hate low margins ==> Enter Goldman Sachs. It’s just speculation, and spokesmen for SKS and GS both declined to provide details. Either way, Saks is in the game.
- New Home Sales for April
- Your Thursday morning serving of Weekly Jobless Claims