Stocks Soar on Bernanke Speech and Better-Than-Feared Economic Data

The Federal Reserve is ready to step in if the economy gets worse, Chairman Ben Bernanke said Thursday, sending stocks soaring. Stocks posted big gains after Federal Reserve Chairman Ben Bernanke said the central bank was ready to step in if the U.S. economy showed further signs of weakening.

Traders were also encouraged by a downward revision in second-quarter economic growth Friday that wasn't as bad as economists had expected. The Dow Jones industrial average ($INDU) and other indexes all gained more than 1%.

Bernanke said in a speech at the Fed's annual conference that while the economic recovery remains tentative, the central bank remains ready to take extra steps to stimulate the economy if necessary, such as buying more debt securities in order to keep interest rates low. He said he still expects the economy to grow next year.

"It could have been worse, and because it wasn't, that was good news," said Alan Gayle, senior investment strategist for RidgeWorth Investments, based in Richmond, Va. "Clearly the bar is being lowered for what constitutes good news these days."

Respire from Bad News

The upturn was a respite from a mainly dismal month on the stock market, which has been falling steadily since its recent high reached on Aug. 9 on a series of poor indicators on the economy. A deep slump in home sales last month was the latest sign that the economy was weakening.

The market stumbled briefly in midmorning after Intel (INTC) lowered its revenue estimate. There, too, the news wasn't as bad as it could have been. Intel's shares edged higher after resuming trading because the company's new forecast wasn't as bad as the worst estimates circulating among analysts.

In economic news, the Commerce Department reported that gross domestic product grew at a 1.6% rate in the April-to-June period. That's still way down from its earlier estimate of 2.4%, but not as bad as the 1.4% expected by economists.

"These are terrible numbers," Kim Caughey, equity research analyst at Fort Pitt Capital Group in Pittsburgh, said. "But they weren't frighteningly horrible."

Treasury Yields Grow

Yields on Treasurys, which help set interest rates on loans like mortgages, rose sharply as their prices fell. That could put upward pressure on mortgage rates, which are still at historic lows.

The Dow Jones industrial average rose 164.84, or 1.7%, to close at 10,150.65. The Standard & Poor's 500 Index rose 17.37, or 1.7%, to 1,064.59 and the Nasdaq composite index rose 34.94, or 1.6%, to 2,153.63.

The Dow's gains Friday wiped out much of its losses for the week, but all major indexes still ended the week with losses. The Dow was down 0.6% for the week, the S&P 500 was down 0.7%, and the Nasdaq lost 1.2%.

Rising stocks outnumbered falling ones six to one on the New York Stock Exchange, where consolidated volume came to 4.2 billion shares.

The yield on the 10-year Treasury note rose to 2.65%, well above the 2.48% it was trading at late Thursday.

Bidding for 3Par Boosts Stocks

A heated-up bidding war between Dell (DELL) and Hewlett-Packard (HPQ) also helped to lift shares. The big computer makers are battling to control the data-storage company 3Par. HP fired the latest salvo early Friday, raising its bid for 3Par to $1.88 billion, topping Dell's latest offer by 11%.

3Par shares gained $6.43 to $32.46, above HP's latest offer of $30 per share and a sign that investors are hopeful for another counteroffer from Dell. Dell's initial bid for 3Par last week was $18 per share.

Intel was up 19 cents at $18.37.

European shares also moved higher after the better-than-expected figures on U.S. economic growth came out. European shares also got a lift after the Britain raised its estimate of second-quarter economic growth to 1.2 percent from 1.1 percent.

In London, the FTSE-100 index rose 0.9%, while the DAX 0.7% and the CAC-40 in Paris rose 0.9%. In Asia, Japan's Nikkei 225 closed up 1%.


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scottee

what???? The Fed needs to be audited and ended....they need to put our dollar back on the gold standard to stop the printing and diluting of our dollar and they need to stop manipulating stock prices, gold prices and interest rates.....we can weather normal ups and downs in the economy.....we cannot weather manipulated ups and downs....let the free markets decide!

August 29 2010 at 9:18 AM Report abuse rate up rate down Reply
prognesub

Stocks turned higher on friday because of a Fed money injection. There was no interruption between QE l and QE 2. The latter will now provide money for the banksters 'till the end of time.

August 28 2010 at 4:51 PM Report abuse rate up rate down Reply
Norman

IF TRUE CONSERVATIVES WANT TO TURN THIS COUNTRY AROUND AND IF ITS NOT TOO LATE WE NEED TO REALIZE THAT CHARITY STARTS AT HOME. THE JAPANESE ECONOMY IS A GREAT EXAMPLE. AFTER WWII ENDED IN 1946 THEY HAD NOTHING TO SELL, AND NEEDED OUR FOREIGN AID CASH FLOWS TO HELP THEM TO SURVIVE. THEIR FAVOURITE SAYING WAS, "WE ARE A SMALL ISLAND, WITH VERY FEW NATURAL RESOURCES, EXCEPT WE HAVE MANY PEOPLE". MC ARTHUR WAS GIVEN A FREE HAND TO HELP THE JAPANESE, HE DESIGNED A NEW CONSTITUTION AND SENT PROFESSOR DEMMING OVER TO TEACH THEM THE BASIC ENGINEERING PRINCIPLES OF MASS PRODUCTION. THE PEOPLE WERE VERY POOR, THE RULING CLASSES WERE ALSO POOR, THEY ALL BUCKLED IN TO REBUILD JAPANS PRODUCTION SKILLS UNDER AMERICA'S GENEROUS SUPPORT.THEY CAPPED CEO MANAGEMENT SALARIES AT $500K IN 1984, AND WERE SHOCKED AT THE GREED OF US TOP EXECUTIVES. THEY TREASURED THEIR ONLY NATURAL RESOURCE, THEY REALIZED THEIR WORKING MIDDLE CLASS SKILLS WERE THEIR ONLY TRUE ASSETS, AND THEN THEY REALIZED, FROM TOP TO BOTTOM OF THE PAY SCALE THAT THEY MUST EXPORT TO SURVIVE. WE NEED TO BRING BACK OUR MIDDLE CLASS JOBS, SINCE THE WHOLE WORLD IS IN A MESS AND SINCE THE USA CAN NO LONGER KEEP UP THE COMEDY OF FOREIGN AID, ALL GLOBAL ECONOMIES ARE WEAK AFTER THE US ECONOMY FINALLY COLLAPSED WHEN THE GLOBAL ECONOMIC LOAD WAS NO LONGER SUSTAINABLE. IT TOOK JAPAN APPROX 30 YEARS TO RECOVER, SAME THING IN GERMANY, NOW THE WORLD MUST REALIZE THAT WITHOUT THE US ECONOMY INTACT, THERE IS NO REAL GLOBAL ECONOMY, AND SENSIBLE EDUCATED CONSERVATIVES MUST REALIZE THIS MATURE FACT OF GLOBAL ECONOMICS,PRINTING MONEY ON THE CREDIT BASIS WILL ONLY WORK FOR A BRIEF TIME, IT SEEMS THAT IT TAKES 30 YEARS FOR AN ECONOMY TO TURN AROUND FOR A SMALL ISLAND LIKE JAPAN, FOR A HUGE ECONOMY LIKE THE USA IT SHOULD BE POSSIBLE TO WEAN OUR IMPORTS DOWN TO A MANAGEABLE LEVEL IN 15 TO 20 YEARS IF THE RIGHT GOVERNMENT DECISIONS ARE MADE, WITHOUT THE NONSENSE WE HAVE IN THIS 2 PARTY BICKERING AND POSTURING IN WASHINGTON.

August 28 2010 at 10:47 AM Report abuse rate up rate down Reply
1 reply to Norman's comment
scottee

I'd love to see all democrats and republicans voted out of office and tea party candidates, whose core values are fiscal responsibility, constitutionally limited government and free markets, voted in.

August 29 2010 at 9:19 AM Report abuse rate up rate down Reply
otterdad48

The Fed has done an admirable job of making sure that even the most incompetent bankers are saved from the the folly of making subprime loans into a real estate bubble. If you believe in supply side prosperity that might pass for good policy. The problem is that the money that the Fed has been loaning the banks at almost 0% interest has all gone to propping up the banks appearance of financial stablility. The hyper inflation that the rightes were screaming about has failed ot materialize because that cheap money is still being used the the shell game that the banks and Wall Street are using to make sure that any losses are not on their books. Those who accuse the Obama administration of a socialist agenda have to ignore the facts to do so with a straight face.

August 28 2010 at 8:48 AM Report abuse +1 rate up rate down Reply
1 reply to otterdad48's comment
scottee

audit The Fed and end The Fed....and vote Dodd and Frank...and their ilk out!

August 29 2010 at 9:20 AM Report abuse rate up rate down Reply