Saturday, August 23, 2008

Market Rises on Oil's Fall, Rumors About Lehman Brothers, and Bernake

The markets rose on Friday with the banks and retailers taking the lead. Oil suffered its largest one day drop in four years, while rumors about a purchase of Lehman Brothers Holdings Inc. (LEH) swirled. The rumors, if true, could end the worst fall by financial shares since 1962.

Lehman Brothers is down about 80% year-to-date, but it rallied 13% after Korea Development Bank said it's considering an investment in the brokerage firm. Citigroup (C), Bank of America (BAC) and JP Morgan Chase (JPM) rose more than 3.8% percent.

Financials and Transports were influenced by Federal Reserve Chairman Ben Bernanke's forecast that inflation will ease. Bernanke was speaking at the annual Fed conference in Jackson Hole, Wyoming. Bernanke stated the stronger dollar and drop in commodity prices "should lead inflation to moderate." The Fed "is committed to achieving medium-term price stability and will act as necessary to obtain that objective." There is speculation, as we have discussed before, that the Fed will stay very patient, and they will most likely not move interest rates until sometime in 2009.

A continued drop in oil prices (commodities) and a patient Fed could spell good news in the coming months for the stock market. It is a wait and see game, but the long term outlook for essentially all areas of the market looks good.

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