Bernanke testimony and retail results key for stocks

Wall Street could keep rallying after notching its best week this year if Federal Reserve Chairman Ben Bernanke gives a reassuring assessment of the recovery and retail earnings show improvement.

Investors are eager to hear more on the thinking behind the Fed's surprise move to raise its discount rate, especially because the Fed's loose monetary policy has provided a crucial spur to equities' advance since their March 2009 bottom.

While the rate hike suggested that the Fed now considers the financial sector to have healed sufficiently to warrant taking back extraordinary liquidity, the hike also sparked unease about a possible broader removal of economic stimuli.

Bernanke's semi-annual testimony on monetary policy before congressional panels next week takes on an even more important dimension as investors look for clarity on the Fed's intentions and how Bernanke sees the recovery progressing.

"We will be watching for more confirmation of which track the Fed is on," said John Praveen, Chief Investment Strategist at Prudential International Investments Advisers in Newark, New Jersey.

"We will be looking for more colour on the timing of the [exit strategy]."

The Fed has said its benchmark fed funds rate would remain exceptionally low for an extended period to sustain the recovery, but there has been little light on the timeline of its exit strategy and what risks might that entail, more so with a high US unemployment rate still a big menace.

"Is [the rate hike] a reflection of its confidence in the stabilization of markets and the economic recovery, or are they very worried about inflation and therefore are hiking rates" said Praveen.

Earnings from retailers, including Home Depot, Target and Macy's, will also be in the spotlight, along with key economic data, including February consumer sentiment and January new home sales.

 

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