Wednesday’s market action revealed more about the overbought and overvalued status of the market itself than it did of the perceived reasons for the downturn, as the underlying monetary and economic fundamentals did not change anywhere near enough to justify such a reaction.
Briefly, the Dow jumped 155 points on release of Bernanke’s statement that eased market fears by stating that premature tightening of monetary policy would be undesirable. So far, so good. Shortly thereafter, however, in answer to a question by Committee Chairman Brady asking when QE could be expected to taper off, Bernanke stated “We could, in the next few meetings….take a step down in our pace of purchases.” The market immediately turned around and started downward. Within a short time the Dow was down 122 points from the previous day’s close, a total swing of 277 points.[More]