Trader reaction to Bernanke

By the end of Wednesday’s session, chatter on Wall Street had everything to do with Ben Bernanke’s candor about how much longer the Fed will keep rates low - and the dollar weak.

Although the Fed often uses the term extended period, the Street has often quibbled over what exactly that means.

On Wednesday, during the first ever press conference following an FOMC meeting, Fed chief Bernanke indicated 'extended period' would entail at least two meetings before a rate change.
”It’s going to be 2 meetings until they even talk about it,” says trader Brian Kelly.

”I was surprised by the specificity of it. That takes us out to the autumn at least,” adds strategic investor Dennis Gartman.

On the news, the US dollar [DXC1 73.215 -0.475 (-0.64%) ] slid to a 3-year low against major currencies, the S&P [.SPX 1355.66 8.42 (+0.62%) ] hit a new bull market high and the Nasdaq [.NCOMP 2869.88 22.34 (+0.78%) ] hit its highest level since 2000.

Did Ben Bernanke just ignite the market's next leg higher?

Trader Tim Seymour thinks in fact, he may have just done that. He took comments made by Bernanke to mean, “they will do what they need to do to get the economy to a point where investors are interested in America. And if that means a weak dollar, it means a weak dollar.”

That begs the question, do stocks [.SPX 1355.66 8.42 (+0.62%) ] benefit from weaker dollar? “It’s clear the market has endorsed that,” Seymour says.


Rebecca Patterson, JPMorgan Chief Markets Strategist agrees with Seymour. “The Fed appears committed to lower for longer.” But she adds, “at least for the time being that’s not a bad thing for the American economy.”

Trader Brian Kelly also found Ben Bernanke’s comments bullish for stocks. “If there's going to be even a minor uptick in inflation investors will put money to work in assets that will beat inflation and that makes the stock market the place to be. The outcome is a much higher stock market.”

Strategic investor Dennis Gartman notes the impact of dollar weakness on oil [CLCV1 113.32 0.56 (+0.5%) ]. But there's a silver lining in oil's march higher, he says. "Thus far, for the past year and a half, as goes oil, so goes the stock market. And on Wednesday oil broke out on the upside," he says.

Of course, the next logical question becomes when will the Fed raise rates and 'take away the punch bowl'.

George Goncalves, Head Of U.S. Rates Strategy at Nomura reminds the desk that Bernanke said the first step in tightening interest-rate policy could occur when the Fed stops reinvesting the proceeds of its bond holdings.

Bernanke would not be specific about when that might occur. He said it will depend on inflation and economic growth in coming months. And he also said that step would be a relatively modest one. But it would constitute the Fed's first tightening because it would allow interest rates to creep up.