Something Meaningful This Time?

Daily State of the Markets 
Monday Morning – January 25, 2010  

Good morning. Stocks came crashing down for a third straight session on Friday due primarily to concerns over the state of Ben Bernanke’s confirmation vote in the Senate. Recall that Bernanke’s term expires on January 31st, which is now less than one week away. The problem here is political analysts contend that the process for actually taking the vote should have already begun, which puts doubt about the stability of the U.S. central bank in play.

Up until Tuesday, Bernanke’s confirmation was assumed to be a done deal. While there are voices in Washington that would prefer Bernanke not stay at the Fed for a second term, In-Trade, which makes a market for just about anything, put the odds of Bernanke’s confirmation at 95%. There wasn’t too much concern since the White House was behind Mr. Bernanke and those with knowledge of how the crisis “went down” praised Bernanke for keeping a cool head and coming up with creative ways to manage what could have become the Great Depression II. As of Friday however, In-Trade showed that the odds of Bernanke being confirmed were down to just 68%.

The reason for the sudden change of heart appears to have little-to-nothing to do with the job Bernanke has done at the Fed. No, the issue appears to be completely and 100% politically motivated. With the upset victory by Scott Brown in Massachusetts suggesting that a “throw the bums out” attitude may be developing across the nation, politicians on both sides of the aisle are suddenly fearful for their jobs in the upcoming November elections.

Thus, in an attempt to counter the public mood, some of those running for reelection have decided it is politically expedient to try and distance themselves from the status quo in Washington, which, unfortunately includes the confirmation of Ben Bernanke.

The White House was assured over the weekend that the Bernanke confirmation vote is on track and the votes are there to get it done. But until the vote is actually taken, some level of uncertainty may remain in the market.

Other issues began to build last week that likely helped the bears have their way on Friday. China’s monetary tightening, the sovereign debt problems in Greece, the rally in the dollar, and concerns about bank regulation all likely weighed on the market as well.

Then there is the chart action. The major indices sliced through their respective moving averages like a hot knife through butter on increasing volume, which is never considered a good thing. Granted, stocks are now oversold and due for a bounce, and the selling was likely overdone late last week. But the key question right now is if we’re seeing a character change in the market.

Since the bull move began on March 10th, 2009, we have seen a handful of pullbacks. In keeping with history, most of these adventures in selling were short and shallow. However, with stocks having run a long way off the bottom and valuations now becoming stretched, almost everyone in the game agrees that a more meaningful correction will begin at some point. So, is that time now?

Turning to this morning, we don’t have any economic data to review before the bell. And with the FOMC meeting taking place tomorrow, the focus may remain on Bernanke this week. However, after a weekend of posturing it appears that Bernanke’s confirmation is likely to happen. In addition, Apple’s (AAPL) earnings, which are due out after the bell this afternoon, may prove to be a distraction from the political wrangling.

Running through the rest of the pre-game indicators, the overseas markets are lower across the board. Crude futures are down $0.09 to $74.76. On the interest rate front, we’ve got the yield on the 10-yr trading higher at 3.65%. Next, gold is moving up by $6.90 and the dollar is higher against the Yen and the Euro, but lower versus the Pound. Finally, with about 60 minutes before the bell, stock futures in the U.S. are pointing to a smartly higher open. The Dow futures are currently ahead by about 90 points; the S&P’s are up about 10 points, while the NASDAQ looks to be about 13 points above fair value at the moment.

* Report includes items that make comparisons to the consensus estimate questionable

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