Market Suffers From Too Much Information

Ben Bernanke is an avowed advocate of a more transparent Federal Reserve, and reactionary, anxious markets are the byproduct. Without the mysterious Alan Greenspan at the helm, the curtain has been pulled back on the Fed to reveal Bernanke as a clear, direct economist who admits he has no crystal ball. And the markets are left adrift at sea with no oars.

"Bernanke has been treating us like adults, but he's finding out we're really a bunch of children," says Ethan Harris, chief economist at Lehman Brothers. "Today will be another case where he probably didn't think he'd be hammering the stock market."

But that indeed was the consequence of Bernanke's inflation-fighting comments Monday at the International Monetary Conference in Washington, D.C.

The Dow Jones Industrial Average tumbled 199 points, or 1.8%, to 11,048.72. Disney (DIS Quote) was the lone Dow component to end with a gain, while the economically sensitive Alcoa (AA Quote) and Caterpillar (CAT Quote) were among the biggest losers.

The S&P 500 and Nasdaq Composite fared similarly, shedding 1.8% and 2.2%, respectively. The markets were already weak Monday, but volume and selling activity picked up after Bernanke spoke at 2:00 p.m. EDT. About 2.2 billion shares traded on the Big Board, and 1.8 billion traded over the counter; losing stocks led winners by better than 3-to-1 in both venues.

Weighing on the averages were energy stocks such as Valero (VLO Quote), which fell despite rising crude prices, tech stocks such as Advanced Micro Devices (AMD Quote) and rate-sensitive groups such as homebuilders, which are already under pressure after cautious comments from Standard Pacific (SPF Quote).

Unwelcome Developments

Bernanke acknowledged moderating economic growth Monday, but his tough words on inflation trumped any mention of a slowdown. Core inflation "has reached a level that, if sustained, would be at or above the upper end of the range that many economists, including myself, would consider consistent with price stability and the promotion of maximum long-run growth," he said. "These are unwelcome developments."