Bernanke Talks Tough On Inflation

The market is under some selling pressure this morning, after Bernanke made some hawkish comments about inflation. He said that policy makers will "strongly resist" any surge in inflation expectations.

This implies that the Fed is now supporting a stronger dollar, which could help ease oil prices. Yesterday, Treasury Sec. Paulson also made comments about supporting a stronger dollar. This has helped the dollar rally for a second day, while the Yen and Euro are both lower.

It has also pushed up bond yields. The 10-year yield is up another 5 bps today to 4.05%. And there is even chatter that the Fed might raise rates again later this year. I doubt it though, unless we are already seeing material improvement in the economy at that time. Canada left its benchmark rate unchanged today at 3.00%, even though most were expecting a rate cut by the central bank.

Financials are bucking this morning's weakness for a change, following yesterday's weak showing. Energy stocks are lower, despite oil trading higher today, back near $136. This could be due to the strong dollar talk.

Asia got spanked overnight, with Hong Kong down -4% and China down a whopping -8%. Ouch.

This recent selloff doesn't seem like it is going to test the March lows, imo. A 50% retracement from the March lows to the May highs would take the S&P 500 back down to 1348, and we touched 1351 this morning. So I am looking to put more money to work, although finding sectors that are working has admittedly become more difficult.