By Carlos Guillen
Equity markets are continuing to rise, with the Dow Jones Industrial Average reaching another record closing price yesterday after dovish comments from two Fed officials. And today comments from Fed Chairman Ben Bernanke have set the stage for the Dow to close at yet another record level.
Yesterday Federal Reserve Bank of St. Louis President James Bullard said that the central bank should continue its bond buying because it's the best available option for policy makers to boost growth that is slower than expected. Perhaps not so clear cut, soon after Bullard's comment, New York Fed President William Dudley said he could not at that point be sure whether policymakers will next reduce or increase the amount of purchases, due to the "uncertain" economic outlook. While not crystal clear, his comments of "uncertain" economic outlook were interpreted as no deviation from the current easy monetary policy trajectory, and this lifted stock markets.
Perhaps already anticipated, Fed Chairman Ben Bernanke's comments today were along the same lines as those depicted by Bullard and Dudley. Ben Bernanke testified before the Joint Economic Committee of Congress earlier today and warned that premature tightening in policy could strangle the economic recovery. And while lawmakers tried to nail down when the Fed will taper its bond-buying program, with one official asking if it could occur before Labor Day, Bernanke evaded the question by saying that the Fed could slow down its asset purchases in its next few meetings.
Of course, investors have once again received further confirmation that the current 85 billion a month asset-purchase program will not slow down in the near term. As such, stock markets have received a boost, lifting the Dow to another intra-day record high and setting the index on track to close at its second record closing price this week.
Existing home sales were up 0.6% in April, which was just slightly slower growth than the Street was looking for but still a decent result as home sales continue their steady recovery. In the meantime, median prices were also up 11.0% year over year and 4.8% month over month. One yellow flag was a strangely large 11.9% increase in inventory month over month, although at 5.2 months' supply it remains quite low in the grand scheme.
This, together with a blowout quarterly result from Toll Brothers, is lifting the industry to new multi-year highs.