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The Dow and the S&P 500 were both trading above their all-time closing highs by early afternoon in New York, the rally being sparked by comments made by Fed Chairman Ben Bernanke after the stock market had shut yesterday re-affirming that monetary policy will remain accommodative ‘for the foreseeable future’.
The Dow rose 0.9% to 15,428 (above the record closing price of 15,409.39) and the S&P climbed 1.05% to 1669.9 (also above its record close which is 1669.16).
In a speech yesterday, Mr Bernanke said that the current unemployment rate of 7.6% ‘understates the weakness in the labour market.’ Combine that with the minutes from the last FOMC meeting, in which officials expressed a desire to see more evidence of recovery in the jobs market, along with this morning’s disappointing jobless claims data, and to me is spells out that the Fed’s stimulus will not be reduced anytime soon (barring a spectacular rate of improvement in employment numbers).
Initial jobless claims unexpectedly rose to a two-month high of 360,000 last week, data from the US Labor Department showed. Although the number is seasonally-adjusted, seasonal factors can still come into play, as factory shutdowns for the summer do not stick to a fixed schedule. Even so, the surprisingly large number does not bode well for the jobs outlook.
A report issued at the same time as the jobless claims data showed falling import and export prices. Total export prices were down 0.1% in June, while import prices dropped 0.2%. This further underlines the fact that downward pressure on inflation is more of a concern at the moment than upward pressure, which was one of the issues focussed on by at least one official at the Fed according to the minutes of the last FOMC meeting. We have more inflation data tomorrow with the Producer Price Index.