Dollar Rises to Three-Year High Ahead of Bernanke

The stock market had an odd reaction to Friday’s strong jobs report. The S&P 500 opened higher, then lost ground, gained back some territory and rallied into the close. The index finished at 1,631 which is the highest close since June 18th. That was the day before Bernanke said that the Fed would start tapering, assuming the economy meets the Fed’s forecast.

A number of Wall Street firms said that due to the jobs report, they expect the Fed to start tapering its bond buying at their September meeting. I had previously said this was unlikely, so I need to walk that back.

According to the futures, the stock market looks to go higher this morning. Alcoa will kick off earnings season when it reports today. On Thursday, our big bank stocks, JPMorgan and Wells Fargo, are due to report. This Thursday, we’ll get a look at the minutes from the Fed’s meeting last month. The dollar, however, is getting a jump on the news by rising to a three-year high.

This earnings season will be very important for the markets and the economy. Bloomberg notes that earnings growth for the S&P 500 rose 1.8% last quarter which was down from the 8.7% growth that has been expected six months ago.

What’s interesting is that while Wall Street has been lowering earnings estimates, price targets have actually been rising. That translates to higher multiples which is often a function of confidence. If the Fed does in fact taper in September, they’ll only do it on the expectation that the economy will do well in 2014. Even after a furious four-year rally, valuations are still rather tame.

Posted by on July 8th, 2013 at 9:11 am


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.