Major U.S. stock indexes were trading mixed Wednesday following Tuesday’s big gains. Wall Street was following closely Federal Reserve Chairman Ben Bernanke’s testimony to the Joint Economic Committee of Congress, which kicked off at 9:30 am ET. Traders also regarded reports showing a slight uptick in U.S. employment in March and a small decline in factory orders in February.
On Wednesday, the Dow Jones industrial average was lower by 2.03 points, or 0.02%, at 12,652.33. The broader S&P 500 index added 4.28 points, or 0.31%, to 1,374.46. The tech-heavy Nasdaq composite index rose 13.99 points, or 59%, to 2,376.74.
Bonds were mixed. The dollar index was also mixed. Gold and oil futures were higher.
Bernanke's written testimony referred to risk of a "slight contraction" in the economy in the first half of the year, with risks to the downside. Action Economics notes “that relatively dour near-term economic outlook was paired with hopes for a recovery in the second half of the year thanks to rate cuts, liquidity measures, etc.”
Still, the Fed chief sees "considerable stress" remaining in the financial sector and confirmed that Bear Stearns told the Fed and other agencies that on March 13 it was on the brink of bankruptcy, which could have caused market chaos.
As expected, the question-and-answer session after the Fed chief’s testimony contained some sharp questions from lawmakers. Bernanke said the Fed did not have "early warning" on Bear Stearns, noting the SEC indicated the firm had "adequate capital," though the Fed chief noted that meant "regulatory" capital, but liquidity was the issue. The Fed wasn't informed until about 24 hours before the events came to a head just before the weekend of March 16.
In response to a question why the Bear Stearns rescue is different from rescuing home owners, Bernanke reiterated the Fed did not bail out Bear Stearns, noting shareholders took a significant loss. He argued the Fed has also been acting in various ways to help homeowners.
In economic news Wednesday, U.S. factory orders fell 1.3% in February after a 2.3% drop in January. It was much weaker than the 0.7% decline that markets expected. Orders are still up 6.0% over last year. Excluding transportation, orders were down 1.8%. The 1.7% initially reported drop in durable goods orders was revised up to a 1.1% drop. Nondefense capital goods orders excluding aircraft, a key indicator for future business investment, declined 2.4% following a 1.0% drop in January. Shipments fell 2.1% after a 1.1% increase in January. Inventories rose another 0.5% from a 1.3% January gain and are up 5.5% over last year. The inventory-shipment ratio is now 1.27 from 1.24.
U.S. ADP reported private payrolls rose 8,000 in March after an upwardly revised 18,000 decline in February (-23,000 before). This is better than the 48,000 lost jobs that markets had expected. The March reading suggests a similar small rise in nonfarm payrolls, says S&P economics, adding back a small contribution from government job growth. S&P continues to forecast a nonfarm payrolls decline of 25,000 in Friday’s employment report.
The U.S. MBA mortgage market index fell 28.7%, in addition to an 11.8% decline in the purchase index and a 38.1% plunge in the refinancing index. This largely reversed out some of the large gains in these indices seen in the prior week, notes Action Economics, while average mortgage rates were only marginally changed.
Bloomberg reports the International Monetary Fund cut its forecast for global growth this year to 3.7% from 4.1% in January and 5.2% last June, and said there's a 25% chance of a world recession due to what it calls the worst financial crisis in the U.S. since the Great
Depression. The IMF said central banks will need to conduct policy "flexibly" as the circumstances warrant.
May NYMEX crude oil futures were slightly higher at $101.09, after ranging between $100.70 and $102.18 overnight before the Energy Dept.’s weekly inventories report.