Bernanke Speech Sinks Wall Street; Dow Sheds 119

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The markets closed deep in negative territory after Federal Reserve Chairman Ben Bernanke offered little new information on how the central bank plans on stimulating the stalling economy and traders awaited a speech in the evening by President Obama. 

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The Dow Jones Industrial Average fell 119 points, or 1%, to 11,296, the S&P 500 slid 12.7 points, or 1.1%, to 1,186 and Nasdaq Composite slumped 19.8 points, or 0.78%, to 2,529. The FOX 50 fell 7.5 points to 854.  

Federal Reserve Chairman Ben Bernanke repeated in prepared remarks that the central bank is considering further economic stimulus at its meeting in September 21.  The comments were essentially the same as when he spoke in August, and provided little new information for the markets to focus on.  

Bernanke also noted that the economic recovery is continuing at a frustratingly slow pace partially as a result of the factors that started the recession. 

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"The recession, besides being extraordinarily severe as well as global in scope, was also unusual in being associated with both a very deep slump in the housing market and a historic financial crisis," he said. "These two features of the downturn, individually and in combination, have acted to slow the natural recovery process."

The Fed's policymaking board is meeting for two days starting on September 21 to discuss what measures, if any, it should take to boost growth. The Wall Street Journal reported on Wednesday night that it is considering unconventional steps. 

Trading has been tumultuous in recent days; indeed, the Dow has made triple-digit moves for the last five-straight sessions.  The blue chips soared 275 points on Wednesday, snapping a sharp losing streak.  The slowing pace of economic expansion, and fears that the economy could dip back into recession territory, has been one of the major themes that has incited the high level of volatility. 

The week has been light so far in economic data releases, but there were several key economic developments on Thursday. 

Weekly jobless claims rose 2,000 to 414,000 in the prior week, higher than the 405,000 economists expected.  The level of jobless claims has been hovering around the 400,000-mark for weeks, which is points to anemic growth in the labor market, according to economists.  This report is the first piece of labor-market data released following the dismal monthly employment report that showed the economy added no net jobs in August. 

The European Central Bank held interest rates steady at 1.5%, halting a five-month tightening cycle as growth fears have overshadowed inflation concerns.  The decision was anticipated by economists. 

President Barack Obama will unveil his plan to jump-start the jobs market before a joint session of Congress on Thursday night.  The plan, which will reportedly include $300 billion in tax cuts and federal spending, has been the subject of heated political debate, and is likely to be watched closely by market participants. 

The trade deficit fell 13.1% in July to $44.9 billion, well below estimates of $51 billion, but still the highest in nearly 18 months.  Imports fell 0.2%, while exports jumped 3.6%.  The reduction in imports was strengthened by falling oil prices.  

While the report lags behind considerably, it figures directly into calculations of broader economic expansion.  The higher the deficit, the more it drags from Gross Domestic Product. In fact, Barclays Capital said in a note to clients issued after the release that the data pushed its tracking estimate of third-quarter growth up half a percentage point above its published forecast. 

Energy markets shed gains and settled modestly in the red, tracking losses in equity markets.  Light, sweet crude dipped 29 cents, or 0.32%, to $89.05 a barrel.  Wholesale RBOB gasoline fell 2 cents, or 0.78%, to $2.89 a gallon. 

Gold leaped $39.90, or 2.2%, to $1,858 a troy ounce.  The precious metal has fluctuated considerably in recent sessions and equities have gyrated violently. 

Foreign Markets 

The English FTSE 100 rose 0.41% to 5,340, the French CAC 40 climbed 0.41% to 3,088 and the German DAX gained 0.05% to 5,408. 

In Asia, the Japanese Nikkei 225 gained 0.34% to 8,793 and the Chinese Hang Seng slumped 0.67% to 19,913. 

 

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