Stock prices and dollar decline ahead of Bernanke testimony

Wall Street's eight-day rally appears to have come to a halt, with Coca Cola leading the Dow lower.

Coca-Cola fell 1.3% to $40.50 by early afternoon in New York, its share price dropping after the company reported second-quarter earnings that met expectations but failed to hit estimates for revenue, managing $12.75 billion of sales versus the $12.95 billion that had been expected. The weakness of the global economy and poor weather during the reporting period were cited as causes of the revenue miss.

Fellow Dow-component Johnson & Johnson managed to top expectations, though, but in spite of this its shares were pressured by the direction of the overall market and edged down slightly in early afternoon trading.

Similarly, Goldman Sachs dropped despite being the latest bank to smash earnings estimates. Goldman’s reported earnings of $3.70 per share compared to expectations of $2.82 per share. Yahoo reports earnings after the market closes this evening.

Fed Chairman Ben Bernanke delivers his annual testimony to Congress tomorrow, and some caution has set in today in case he says something unexpected. The fact that he swung from post-FOMC comments preparing the market for tapering later this year to last week’s deeply dovish speech means that no-one knows quite what to expect from him. Personally, I would expect him to re-iterate his commitment to keeping monetary policy very accommodative for the foreseeable future, but that does not necessarily mean that he will rule out the possibility of tapering.

Macro-data has been mixed so far this week, with weak retail sales yesterday, but strong housebuilder confidence reported today, with the NAHB Housing Market index jumping to 57 for July from June’s reading of 51. A separate report showed iindustrial production rose 0.3% in June.

The Dow was down 60 points or 0.39% at 15,423 by early afternoon on Wall Street and the S&P 500 dropped 0.54% to 1673.4. The US dollar weakened against its most commonly-traded peers: USD/JPY fell 0.69%, while the euro gained 0.65% against the dollar.

The market has probably been a little bit spooked by hawkish comments from the Fed’s Esther George today. In an interview, she said about the stimulus package that ‘I think it is time to begin to adjust those purchases.’ My view is that it’s important to put Ms George’s comments in context; she has a 100% record of dissenting in FOMC meetings so far this year and her concerns over the monthly asset-purchases are well documented. There is no surprise in what she is saying, therefore, and at the Fed she remains isolated in her view that tapering should begin immediately.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.