Fed Chairman Ben Bernanke, in a speech to the Joint Economic Committee of the U.S. Congress on May 22, 2013, hinted that the Fed would someday taper its monthly buying program of $85 billion in longer-term Treasury bonds and Mortgage Backed Securities.
“Someday” is probably when unemployment drops below 6.5% and inflation rises above 2%. Big banks panicked by selling bonds based on Bernanke’s comments, and drove up bond yields worldwide. Their panic was manifested by the Dow Utility index being driven down 14% at the open on May 23, for about 15 minutes.
I personally believe that the so called “big bank panic” also drove down utility prices, Japanese stock prices, and more. Chinese manufacturing weakness was revealed on May 23 and this news also drove down Chinese stock prices.
I believe bank short selling has only enough powder to drive a sharp drop in prices for a few days. Hedge funds and banks all share the same information instantaneously and act together. In my opinion, the market declines were premature and prices will recover within several days.
I like banks, small-cap value stocks, Dow and S&P 500 Index stocks at this time. I don’t see a sharp move higher or lower here, first a recovery then a muddling through increase over time.
My personal analysis indicates that all style-box indexes have good momentum with value ahead of growth.
I believe utilities and gold have negative momentum, and semiconductor, oil, and finance momentum are positive. The world indexes have positive price momentum with Germany highest, followed by U.S. and the U.K.
Because the markets can turn quickly, be ready. May the market be with you.