For the most part of the day, the markets were entrenched in a sideways pattern yesterday, when suddenly the indexes dropped like a rock as if pushed off a cliff.
The culprit was none other than Fed chairman Bernanke who testified before congress about the state of the economy. His words were anything but assuring for Wall Street as he used phrases like the outlook is “unusually uncertain” and “in all likelihood, a significant amount of time will be required to restore the nearly 8 1/2 million jobs that were lost over 2008 and 2009.”
Not exactly confidence building for a market that has rallied way ahead of any economic reality. At the same time, he mentioned that the Fed will act if the economy needs more boosting. I guess, since it worked so well last time, we need to do more of it. Go figure…
Bulls and bears are just chasing each other’s tails without clear direction. This is a market environment where you can lose money quickly on the short side and on the long side.
It’s best to stay away from equities for the time being (unless you are hedged) and remain in bond funds/ETFs. As the economy weakens further, bonds will be the beneficiary. The trend is up and, until it reverses, I see no reason to change.