The Bulls and Bears Report: Will Bernanke Throw Markets a Bone?

(eToro Blog) Markets had been given reason to hope when Dennis Lockhart, the president of the Federal Reserve’s Atlanta branch, said last Friday that his receptivity for QE3 has increased a bit over recent months. While he denies that he’s been completely convinced of its need, it’s clear to policy watchers that he’s poised to jump off the fence. Lockhart said recently, much as Fed Chairman Bernanke had recently stated, that in his opinion he’d have to see more deterioration before additional stimulus would be warranted. It would seem that he has in fact caught sight of that “deterioration,” but does Ben Bernanke see it the same way?

We’ll know soon enough the answer to that question. This week’s market moving event begins and ends with Fed Chairman Ben Bernanke who will do his best to paint an accurate picture of the U.S. economy and outlook. Critics by any measure, art connoisseurs or learned economists, would certainly say that it’s not going to be a pretty picture. Over the past few months, there has been very little supportive data, which has boosted speculation that the Fed will take a more dovish stance.

Will there be a winner if Bernanke not only paints a gloomy picture but forces markets to buy it? Of course; there’s always a winner and in this case it’s the U.S. Dollar and Dollar bulls. But losers will abound without Bernanke’s express (or implied) promise of more easing; among them Wall Street’s equity and commodity traders, and any (though not all) Dollar bears.

Though traders may be hopeful, analysts are generally not optimistic. Most believe that Bernanke will probably throw bulls and bears a bone in equal measure, neither sufficient to satisfy but something to gnaw on until the FOMC meets later this month. While analysts expect that the Fed will announce QE3 sometime this year, there’s no consensus that the time is now.

On Friday, following week-long (plus) string of down days, Wall Street finally closed higher. The DJ30 gained 203.82 points, the SPX500 gained 22.02 points and the NASDAQ gained 39.67 points. Trading is likely to be somewhat subdued as markets wait for Bernanke’s testimony to begin (tomorrow) and end (Wednesday). OpenBook trader solange67 from France has a large holding in the DJ30, giving it 74.3% allocation for a 10.6% gain over the past month. Over the same period, the trader had a recorded profit of 161%, and has a 72.7% profit for last week.

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