6/6/2012
By Carlos Guillen, Research Analyst

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The market's strong bounce today brought a sigh of relief to investors that had been keenly focused on all things Europe recently. Of course, while the situation in Europe is still a mess, the hope here at home is that the Fed will become more inclined to provide some form of quantitative easing to the U.S. economy in the near future, and it is this hope that had stocks nicely higher today, with the Dow Jones Industrial Average up over 286 points or up 2.37 percent during the trading session.

With Ben Bernanke speaking tomorrow, investors have ramped up their hopes that he will give some hints of some form of monetary intervention. As it stands, during this past month, the economy produced the weakest employment gains in a year. Moreover, equity markets have taken a beating, as investors have been in fear of the consequences of a euro zone failure. With inflation pressures subdued, it has become more apparent that the Fed has increasing room to provide monetary assistance in the short run. At the very least, Ben is likely to give strong confidence to markets tomorrow as he will surely convey that the Fed will stand ready to take strong action if need be. At the moment, the word on the Street is that while the Fed will not likely pursue another round of asset purchases, it is likely that it will extend Operation Twist, which is a program that started in September of last year to lengthen the maturities of assets already on the Fed's balance sheet and is scheduled to expire at the end of this month.
 
So far inflationary pressures remain low, in particular that of gasoline. This should serve to assist growth in consumer spending for the rest of the year, which represents approximately 70 percent of gross domestic product. With government and private enterprise spending at a stall, consumer spending is really all the U.S. economy has to provide economic growth this year. While the U.S. economy will likely demonstrate growth this year, evading a recession, a sub-normal growth rate of well under 2.7 percent is nothing to cheer about given that we are still in recovery mode. Nonetheless, we'll take all the growth we can get at this juncture.

Carlos Guillen
Wall Street Strategies