Updated: 12:55 p.m. ET.Darn that Ben Bernanke. The Federal Reserve Chairman went to Capitol Hill today and promised very little about stimulating the economy when Wall Street wanted to hear that the Fed was raring to go.
As a result, a big rally that saw the Dow Jones industrials ($INDU) jump as many as 140 points right at the open has shrunk considerably. The Nasdaq Composite Index ($COMPX) briefly gave up all of a 29-point gain but has moved back into the black -- barely.
The market had shot up at the open largely because of euphoria in markets around the world that China cut its key interest rates for the first time since 2008 to try to boost a flagging economy. In addition, U.S. initial jobless claims fell by 12,000 on a seasonally adjusted basis, the first decline after four weeks of increases. And Spain was able to sell about $2.6 billion in new bonds today, and yields fell on speculation for help for the country's struggling banks.
The China move and the gains for stocks worldwide pushed the dollar modestly lower and, for a while, allowed crude oil (-CL) in New York and in London to move higher. But gold (-GC) has fallen back below $1,600 an ounce.
At 12:55 p.m. ET, the Dow was up 99 points to 12,512. If the gain holds, it will the third straight for the blue chips. The Standard & Poor's 500 Index ($INX) was up 7 points to 1,322. The Nasdaq had gained 7-point gain at 2,852. If the S&P 500 and Nasdaq gains hold, they would be the fourth in a row.
Meanwhile, the Nasdaq-100 Index ($NDX), which tracks the largest Nasdaq stocks, was up 7 points to 2,553. It had been up as many as 24 points. The index is heavily influenced by Apple (AAPL), which was up $2.46 to $573.92.
Facebook (FB) was off 26 cents to $26.53.
Fitch Investors downgraded Spanish debt to BBB from A.
Crude oil gives up its gains
Crude oil had reached as high as $87.03 a barrel on the China news but has fallen back to $85.01, down a penny. Brent crude was off 37 cents to $100.37 a barrel.
Gold was down $42.90 to $1,591.30 an ounce. Silver was off 89.3 cents to $28.595.
Interest rates were lower, with the 10-year Treasury yield falling to 1.647% from 1.651% on Tuesday. The dollar was lower against major currencies.
Bernanke says the Fed is ready if needed
The Fed chairman's testimony before the Joint Economic was widely anticipated and a disappointment. That may reflect a problem with Wall Street, which was hoping Bernanke would at least hint another stimulus move was near.
But Bernanke basically said the Fed stood ready to stimulate the economy if things deteriorate. But he pointedly did not say the economy was deteriorating enough to warrant a Fed move.
Since the Fed has cut interest rates basically to zero, about all it can do is what it is doing now. That's selling short-term Treasury securities and buying longer-term issues. A small program of reinvesting maturing securities, called Operation Twist, is due to expire in June.
The Street was hoping that last week's weak jobs report would be a good enough trigger, but there are a number of members of the Fed's rate-making body, the Federal Open Market Committee, who fear that the Fed's moves may unleash new bouts of inflation.
What Bernanke did, however, was warn that the fiscal cliff is coming -- where legislation passed last summer would force across-the-board spending cuts while Bush-era tax cuts expire. Rapid cutting of federal spending would trim the economy's sails by quite a bit.
What he wants is a fiscal policy that protects the economy now but brings deficits down in the long run. Congress needs to act, he said.
To push the point further, Fitch Ratings executive warned the ratings agency would downgrade the nation's triple-A credit rating if the government doesn’t get its fiscal house in order. A potential downgrade could send shockwaves through financial markets, similar to how S&P jolted markets last summer when it stripped the U.S. of its top credit rating.
Separately, the Labor Department reported that initial jobless claims fell 12,000 in the latest week to 377,000 after four weeks of increases.
The news was better than expected, and some economists expect the weekly numbers to fall in the coming weeks largely because gasoline prices are coming down.
China worries about a softening economy
China’s 25 basis point (0.25%) cut in benchmark lending rates on Thursday surprised economists and financial markets. Many economists said they thought the rate cut is a signal the economy is slowing faster than previously thought.
"Policymakers are going all out to shore up the economy," wrote Mark Williams, chief Asia economist at Capital Economics in London.
China has been raising rates fairly steadily since the worst of the 2008-2009 financial crisis eased because of worries about an overheated real estate market. There were two rate increases in 2010 and three in 2011.
China's economic growth was a big reason why markets recovered as rapidly as they did after the 2009 market bottom.
Best Buy and Lululemon shares take a hit
Best Buy's (BBY) shares were down 89 cents to $19 after Richard Schulze, its founder and biggest shareholder, said he is resigning as chairman to "explore all available options" for his 20.1% stake in the electronics retailer. He had planned to step aside as chairman in June and leave the board after the 2013 annual meeting.
While a private sale would be the most likely transaction for Schulze’s shares, his public announcement to seek options would imply little interest so far from private equity buyers, Bloomberg News said. The Minneapolis Star-Tribune suggested Schulze ultimately wants to take the company private, but that would require raising $12 billion or so to make a deal work.
Lululemon Athletica (LULU), the Vancouver-based yoga-wear retailer, declined the most in six months after projecting full-year earnings and sales that trailed analysts’ estimates. Lululemon fell $6.68 to $63.34. The shares had soared 50% this year through yesterday.
Full-year profit will be as much as $1.60 per share, the company said today. Analysts had been projecting $1.63. Revenue will total as much as $1.34 billion, a touch less than the consensus estimate of $1.35 billion. In March, Lululemon had projected full-year profit of as much as $1.57 a share on sales of a maximum of $1.33 billion.
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