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Stocks rally as markets absorb Bernanke speech

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Stocks rally as markets absorb Bernanke speech

After a sluggish Wednesday session that saw US stocks flat-line, the markets rebounded strongly on Thursday, picking up where they left off prior to the release of the FOMC meeting minutes. Wednesday’s minutes left investors uncertain about the future of Fed monetary policy. Uncertainty fueled speculation, causing investors to tread water ahead of key US economic releases on Thursday and Friday. On Thursday investors had the opportunity to fully absorb remarks made by Fed Chairman Ben Bernanke, who on Wednesday backed accommodative monetary policy for the foreseeable future.

Bernanke’s exact words were in fact highly accommodative monetary policy, which suggests that quantitative easing may continue in full swing for the balance of the year. US stocks and global commodities rose today, while bond yields fell, as Bernanke’s remarks reassured investors that the days of loose monetary policy weren’t over. Stock and commodity prices have been supported by Fed stimulus, although recent earnings reports have given investors confidence that stock prices could advance without stimulus backing.

The S&P 500 soared on Thursday, closing the New York session at 1,675.02, a gain of 1.36 percent. The Dow Jones Industrial Average also soared 1.11 percent to close the day at 15,460.20. The NASDAQ Composite, which still managed to beat the odds on Wednesday, advanced another 1.63 percent to close New York trade at 3,578.30.

Precious metals, which have been the hardest hit amid rising expectations for stimulus tapering, responded positively to Bernanke’s latest remarks. Gold futures advanced more than 2.7 percent to $1,284.60 an ounce. Silver and copper futures also advanced 4.49 percent and 2.77 percent, respectively.  Platinum Spot closed the day at $1,413.35, a gain of $43.21.

The direction of Fed policy will depend on the cumulative decline of unemployment and ongoing growth in private payrolls. This means that market participants will need to keep a watchful eye on the economic newswire to determine if and when the Fed is going to shift its monetary stance. On Wednesday Bernanke tried to communicate the Fed’s plans for two different monetary tools: bond purchases and interest rates. Bond purchases will continue until the Fed believes it has made sufficient progress in terms of price stability. Interest rates will be raised only when unemployment falls to 6.5 percent and long-term inflation doesn’t exceed 2.5 percent.

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