Why Fed Chief Bernanke's Comments Prompted a Market Spike

Joel Anderson  |

After the worst week so far this year for the major indices, positive words from the Chairman of the Fed prompted a major rebound as the markets all made significant gains. The Dow Jones finished up 1.23 percent, the S&P gained 1.39 percent, and the Nasdaq jumped by 1.78 percent.

Ben Bernanke, while speaking to a gathering for the National Association for Business Economics, sparked the market rally when he stated that further Fed actions might be taken to help support the modest recovery in the labor market.

"Further significant improvements in the unemployment rate will likely require a more rapid expansion of production and demand from consumers and businesses, a process that can be supported by continued accommodative policies," Bernanke said.

Bernanke's speech was most likely viewed by many as a reiteration of the belief that the Fed is willing to take action to support economic growth and ensure that the current recovery continues to gain steam.

"The Bernanke speech reiterated that the Fed may not do anything now, but they aren't taking further policy options off the table," said Bill Stone, chief investment strategist at PNC Asset Management Group.

After years of a stagnate economy, the labor market has been showing slow but steady improvement since late last year. This has prompted a similar recovery in many equities markets, particularly since the situation in Europe appears to have stabilized for the near future. Bernanke's comments also received a boost from German Chancelor Angela Merkel, citing fragility in Spain and Portugal, may be willing to let temporary and permanent euro zone rescue funds run parallel to each other, potentially increasing the level of rescue funds available to bail out troubled European countries. Combined, this news seemed to completely outweigh a slight decline in pending home sales in February and a slow-down in the expansion of Texas-area manufacturing.

The leap in the markets was a rising tide that lifted all boats, with companies of all sizes showing solid gains.

"There is still a lot of cash on the sidelines looking for a pullback, and I suspect some people over the weekend said, 'Yeah, maybe I'll put some money in,' and then you get Ben Bernanke's comments and that stoked the fire," said BlackRock's vice chairman and global chief investment officer Bob Doll.

The gain on the Dow was lead by JP Morgan (JPM), which gained 2.24 percent, and American Express (AXP), which gained 2.46 percent on news that it was increasing its dividend by 11 percent. Among the day's biggest gainers was Carrol's Restaurant Group (TAST), which gained 12.45 percent on news that it was buying 278 Burger King locations and a stake in the company for $15.8 million. Also gaining major ground was luxury electric car manufacturer Tesla Motors (TSLA), up 9.74percent, after an upgrade from Wunderlich Securities. Despite this, A123 Systems (AONE), a maker of electric car batteries, failed to join the rally and was off 12.35 percent on news that it would have to spend $55 million to replace defective battery packs and modules.

Finally, Lions Gate (LGF) got a Monday morning boost of 4.47 percent after the opening of The Hunger Games on Friday and pulled in $155 million in its opening weekend.

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