Why Bernanke Won't Deliver What the Dow Wants

Judging from the big rise in the stock market this morning, you might reasonably think that Federal Reserve Chairman Ben Bernanke had come out with an illuminating speech explaining exactly what the Fed plans to do in every possible contingency going forward. Yet investors got no such promises from the Fed, instead taking it on faith that the central bank will continue its successful management of monetary policy when it meets later this week. Even that was enough to send markets soaring, with the Dow Jones Industrials (DJINDICES: ^DJI  ) climbing 165 points by 10:45 a.m. EDT in a broad-based rally that sent stocks higher around the world.

Yet investors need to understand that there's only so much the Fed can do to eliminate uncertainty about its future actions. The key to the Fed's ability to manage the economy is its ability to surprise the financial markets when necessary, and the Fed therefore won't show all its cards for fear that doing so would reduce its effectiveness going forward. Moreover, with Bernanke himself seen leaving his role as Fed chairman at the beginning of next year, investors will have a new Fed leader to get familiar with at what will be a pivotal time for interest rate policy and the economy.

Working with incomplete information is something markets are used to, though, despite the volatility that it can produce. AT&T (NYSE: T  ) posted minimal gains after Spain's Telefonica (NYSE: TEF  ) denied rumors that AT&T was looking to buy out the European telecom giant. With its already massive position in the U.S. wireless market, AT&T will have to look abroad for substantial growth opportunities. With Telefonica having chosen to cut its dividend temporarily in order to reallocate capital, a buyout might have been good news for its shareholders; Telefonica stock is up 3.5% despite its denial. Still, given the amount of money involved -- $93 billion, according to one report -- it would take a massive commitment to get the deal done.

Boeing (NYSE: BA  ) has risen almost 1% after CEO Jim McNerney declared in an interview this morning that he was "highly confident" about the fixes made to the 787 Dreamliner's batteries. With the company having recently upgraded its already rosy outlook for commercial-aircraft sales over the next two decades, Boeing appears better poised than ever to take advantage of the multitrillion-dollar opportunity before it, especially as it seeks to put its production problems behind it.

Finally, beyond the Dow, construction equipment company Terex (NYSE: TEX  ) put the dampers on the rally with an 11% drop after cutting its forecast for full-year earnings by about $0.50 to $0.60 per share. Facing slowing gains in North America, continued challenges in Europe, and mixed markets around the world, Terex cited weakness in equipment designed for construction, as well as ports. Without a more robust global economic recovery, Terex could be just the first of many companies reporting similar shortfalls as second-quarter earnings season starts in a few weeks.

Boeing is a major player in a multitrillion-dollar market in which the opportunities are massive. However, emerging competitors and the company's execution problems have investors wondering whether Boeing will live up to its shareholder responsibilities. The Fool's premium research report on the company provides investors with the must-know info on Boeing. It will be updated as key news hits, so don't miss out -- simply click here now to claim your copy today.

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  • Report this Comment On June 17, 2013, at 2:51 PM, Decoy0527 wrote:

    Most investment writers seem very happy with Bernanke's actions over the past 5 years, but it seems to me that he is just another money printer. Printing money for that long a period of time is the easy way out approach. Bernanke is an enabler, that is, he is enabling our Congress and White House from having to cut expenses or raise revenue. Someday, the borrowed money needs to be paid back but current Wall Street thinking is "why worry". The USA is becoming Stockton Calif. or Detroit with a printing press. There will be consequences. Only question is when those consequences arrive.

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9/29/2016 4:35 PM
^DJI $18143.45 Down -195.79 -1.07%
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Boeing CAPS Rating: ****
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AT and T CAPS Rating: ****
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Telefonica CAPS Rating: ****
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