The dust settles on 'Dark Tuesday'

Federal Reserve Chairman Ben Bernanke smiles at a hearing in front of the House Budget Committee on Capitol Hill.

KAI RYSSDAL: The Fed chairman couldn't have timed it better if he'd tried. Mr. Bernanke had a previously-scheduled appointment on Capitol Hill today with the House Budget Committee. Just so happened to be the day everybody was looking for some reassurance about the stock market. See if this does it for you.

BEN BERNANKE: I don't think it would be useful for me to try to parse the movement into the components associated with different pieces of news or pieces of information.

That sounds like his best Alan Greenspan impression, if you ask me.

But the current chairman eventually 'fessed up that it's going to take a while to sort out exactly what did happened.

BERNANKE: There didn't seem to be any single trigger of the market correction we saw yesterday.

By the time the opening bell rang this morning, there were already two big economic reports out that would have hit investors hard. On any other day. The first was an update of fourth-quarter Gross Domestic Product. Economic growth was cut from 3.5 percent to 2.2.

But the head of the central bank said he and his colleagues aren't all that worried.

BERNANKE: The downward revision of the fourth-quarter GDP numbers we got this morning is actually more consistent with our overall view of the economy than were the original numbers.

We got economist Chris Low at FTN Financial on the phone to dig deeper into that number. And whether there might be a silver lining in there someplace.

CHRIS LOW: The good news is that more than half of the revision came from a drop in inventories. And that's a good thing when companies go through an inventory correction like they did in the fourth quarter, then the odds are that growth will actually pick up a bit once that inventory correction ends.

The other big number of the day was yet another sign housing's far from done dropping. January new home sales were off 17 percent. Because what's on the market isn't selling.

Here's Chris Low again.

LOW: We are selling new homes at a pace of less than a million a year. We have inventories of about 4.5 million. So its going to take a long time to burn through that huge inventory bulge. And as long as we keep working on inventories, prices are gonna drop.

With all that in mind, Marketplace's Bob Moon brings us full circle back to Wall Street and why today didn't go horribly wrong.


BOB MOON: While the Fed chief was accentuating the positive on Capitol Hill, analysts and investors all seemed to be singing a similar theme on Wall Street.
MUSIC: The fundamental things apply, as time goes by . . .

LARRY WACHTEL: When you look at the fundamentals — the earnings, the outlook for the economy, the Federal Reserve stance — nothing much changed.

Wachovia Securities consulting analyst Larry Wachtel is one of many Wall Street observers who keep pointing again and again at the "fundamentals." And out of the clouds of yesterday's apparently passing storm, the emerging consensus today was: the underpinnings of the economy are sturdy.

Even though most Asian and European markets remained weak, analysts suggest they were just correcting for yesterday's Wall Street slide.

And never mind that economic growth wasn't as strong as first believed, or that new home sales keep falling. Wachtel says simply, "Tell me something I don't know."

WACHTEL: Frankly, the revision downward in GDP had been long expected, and housing continues to flounder. So it wasn't like the Street was taken aback by these numbers.

Nor did they sway those who still see prospective economic growth. Market strategists at no fewer than three big investment houses — UBS, Merrill Lynch and Citigroup — are recommending investors keep buying stocks. Although on the floor of the New York Stock Exchange today, Seaport Securities broker Ted Weisberg was counseling caution.

TED WEISBERG: I think we would say to investors that, as always, do your homework and look for your entry points. And I would basically keep my power dry for a couple of more days, just to see if we're out of the woods or not.

But he also says don't wait too long, or you could miss some good bargains amid yesterday's ruins.

I'm Bob Moon for Marketplace.

About the author

Bob Moon is Marketplace’s senior business correspondent, based in Los Angeles.

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