Federal Reserve Chairman Ben Bernanke testifies before Congress' Joint Economic Committee (JEC) at 10am today. Investors would've focused on Bernanke anyway, but the rapidly eroding state of the global economy and China's 25 basis point rate cut makes this a particularly critical point for him to be discussing the economic outlook. The testimony is must-see. The question is what you should be looking for and whether you can invest off the Fed chief's stated outlook.
"Any aggressive stance, any concern, any more light in potential QE or Fed intervention could move your dollar," Rich Ilczyszyn, the founder of iiTrader.com. This trader is looking for anything that moves the buck.
With the dollar perilously overbought, any reversal is going to be fast and furious, a move likely to drive stocks and commodities much higher in a speedy manner.
Under normal circumstances the Fed's hand would be stayed given the fact that it's a Presidential election year. President Obama's chances of being reelected are very much tied to the fate of the stock market; making this a questionable time for the Bernanke to do anything rash.
The situation in the Eurozone puts U.S. stimulus back on the table this year. Stimulus efforts aren't just a U.S. matter, but could be globally coordinated. The Fed isn't going to sit this one out in the name of appearances.
Expectations for the economy and global Central banks as a whole are so low that Bernanke doesn't actually have to say much to get traders moving. Anything suggesting he is very concerned, deeply troubled, aggressively protective, or foot-stompingly irate is going to be a signal to the market that some form of stimulus is imminent.
Not that stimulus is a long-term palliative for the economy or stocks. Ilczyszyn says it will remain a trader's market, or "choppy affair" as he puts it, until further notice. The Bernanke Fed has used all the traditional tools for jump-starting the economy over the last four years and stocks haven't budged for the last 18 months.
Bernanke isn't going to offer an economic fix in today's testimony, but he could very well be the catalyst to a meaningful rally in stocks. At this point traders should take anything they can get.
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