Investors are worried about growth in the US
Federal Reserve chairman Ben Bernanke’s testimony to Congress was the major catalyst for US indices to move higher during the middle of the month. His comments indicated that the outlook for the US economy remains reasonable and that signs had emerged that inflationary pressures had started to moderate. The positive tone of Mr Bernanke’s testimony helped to offset the negative newsflow surrounding the US housing market. Sharp increases in mortgage debt defaults, largely focused on the sub-prime market, raised concerns that housing market issues could yet cause problems in the wider economy, concerns that were exacerbated by disappointing results from house builders. Corporate news was largely positive and pushed the Dow Jones to fresh record highs during the month. At the end of the month, comments from former Federal Reserve chairman Alan Greenspan that the US economy could fall into recession by the end of the year added to the impact of the sharp falls in Asian markets and left the S&P 500 index 2.2% lower.
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