Bernanke Calms Jittery Markets

Indeed, many who were not defensive prior to Tuesday may become more defensive. And those investors who were defensive may be coming out of hibernation to contemplate a shopping spree. But from both psychological stances, the broad theme is "wait and see" for a few more days. While such cautious tones prevail, most traders acknowledge that liquidity is still out there and valuations are still attractive for stocks in the long run.

The $600 billion reduction in overall stock market value Tuesday is nothing to sneeze at. That's more than Congress has spent since September 2001 on operations in Iraq, Afghanistan and other activities, according to news reports that cite the Congressional Budget Office.

"Losses are losses," says Marc Pado, chief market analyst at Cantor Fitzgerald. "Some funds got whacked yesterday, and portfolio adjustments need to get made, and that will take time."

Buyers will have to overcome some of the weak economic data that has been streaming in of late, with perhaps more to come. Indeed, the market was on a roller coaster until Bernanke testified before the House Budget Committee. It wasn't long into the subsequent Q&A session before Gentle Ben soothed the markets with his calm tones about the economic outlook.

"The Fed has been closely monitoring the markets. They seem to be working well, and working normally," he said. "We have also been closely monitoring the economy to look at new data to see how it impacts our forecast. My view is that taking all the new data into account, there is no material change in our expectations for the economy since I last reported to Congress at the Humphrey Hawkins testimony [on Feb. 14]. We are looking for moderate growth in U.S. going forward."