MarketView for February 10

Summary

Share prices were a bit lower on Wednesday as worries over Federal Reserve Chairman Ben Bernanke's post-recovery strategy offset optimism about a possible rescue for debt-burdened Greece. In addition, trading volume was light, with many of the industries players leaving early because of the second major East Coast snowstorm. As a result, only about 1 billion shares changed hands on the Big Board, well below last year's estimated daily average of 2.18 billion.

The French daily Le Monde wrote that France and Germany were set to present a plan at a European Union summit on Thursday aimed at preventing Greece from going bankrupt. Offsetting that piece of good news were comments by Bernanke in which he gave his most detailed description to date of how the Fed would dismantle emergency supports put in place to bolster an ailing economy. Shares recovered as some traders felt the initial reaction was overdone.

The market fluctuated between positive and negative during the day, with the low volume being the prime culprit. Financials were the only S&P 500 sector to close higher. The S&P financial index gained 0.8 percent. Energy and industrial companies, including Chevron, were among the biggest drags on the Dow, reversing Tuesday's trend. Chevron slipped 0.8 percent to $70.75.

Sprint Nextel fell 8 percent to $3.36 after it reported quarterly revenue that missed Wall Street's consensus forecast. Wyndham Worldwide chalked up a gain of 4.7 percent to close at $22.22 after its earnings beat expectations and it tripled its dividend. Disney Co rose 0.6 percent to $30.03 a day after it reported its first-quarter results.

Trade Deficit Widens

Rising demand for foreign goods in the United States caused the trade deficit to widen more than expected in December, the government said Wednesday, suggesting that American businesses and consumers were growing more confident about spending.

The gap between the value of imports and exports was $40.2 billion in December, up 10.4 percent from November. Wall Street analysts had expected the deficit to grow to $35.8 billion.

As economies start to recover, demand is picking up for American exports like soybeans and auto parts. Exports rose 3.3 percent in December to $142.7 billion, continuing an upward trend. That was not enough, however, to offset the 4.8 percent increase in imports, which totaled $182.9 billion.

The larger-than-expected trade gap could mean that the government will have to revise its estimate for economic expansion in the fourth quarter of last year. Last month, the government said the economy expanded at a rate of 5.7 percent from October to December — the fastest pace in six years — aided by a rise in exports.

A weak dollar has made American products — everything from airplanes to microchips — cheaper for many foreign consumers.

Oil imports rose sharply in December, contributing to the swelling trade gap, reaching $28.1 billion from $24.4 billion in November. In recent months, fluctuations in the price of oil have often been a central reason for the widening trade deficit. But that was not the case in December — the price of oil remained relatively steady, and businesses simply imported larger quantities of petroleum. Excluding oil, the trade deficit in December was little changed from November.

The politically important trade gap with China narrowed slightly in December, retreating 10.3 percent.

Dallas Fed President Sees Threats to Growth

With the economy in the early stages of recovery, the Federal Reserve must find ways to withdraw unprecedented monetary accommodation without disrupting that progress, Dallas Fed President Richard Fisher said on Wednesday.

However, to do so effectively the central bank must retain independent oversight of monetary policy, which Fisher said is currently under threat from several legislative proposals that could subject policymakers to "congressional second-guessing."

"As the need for monetary accommodation lessens, my colleagues and I on the FOMC must find ways to unwind the Fed's much-expanded balance sheet with the deftness to minimize credit market disruptions and the timeliness to avoid inflationary pressures," Fisher said.

"We are constantly discussing internally the ways and means to shrink our balance sheet back to historical norms, aiming to have our holdings once again consisting primarily of Treasuries needed for the regular operations we undertake as the nation's central bank."

The Fed has pumped more than $1 trillion into the economy after slashing benchmark interest rates to near zero to help pull the U.S. from what Fisher on Wednesday called a "hellish economic downturn." While the economy has begun to recover, "there remain many roadblocks that must be overcome before we will be able to breathe easy again," Fisher said.

The U.S. economy has recently emerged from its worst recession since the 1930s, expanding at a solid 5.7 percent annualized rate in the fourth quarter. Yet, Fisher saw plenty of impediments to sustaining this performance.

"Businesses must develop sufficient confidence in the future to begin expanding their order books and their payrolls. Banks must be willing and able to lend again," he said. "Consumers must regain their wherewithal and the confidence to open their pocketbooks."

More broadly, Fisher reiterated his concern about the fiscal deficit, as government spending on programs such as Medicare increases even as tax receipts dwindle. He also saw the risk that "Congress will seek to politicize the Federal Reserve."

Borrowing costs for the U.S. government remain low, in part because concerns over sovereign debt in Greece and other European countries have drawn investors to the relative safety of U.S. debt, he said. But eventually, the U.S. will have to address the fiscal situation head-on.

"As bad as the situation is, I know one thing that would make it worse, and that is if the Congress took the easy way out by turning to the Fed to simply print our legislators' way out of their misery, devaluing the debt they have incurred through their spendthrift ways."

Fisher is not a voting member of the Federal Open Market Committee this year.