Market Rallies While Regulatory Structures Questioned
Investors are no doubt hopeful that the Wall Street rally of late last week will continue into the coming week, in a time of year which is known to present light trading volumes. The unexpected rally was boosted by a statement from Federal Reserve chief Ben Bernanke in which he revealed that authorities believe the US economy is approaching a recovery, while at the same time pointing out that economic recovery is likely to be slow, with the rate of unemployment remaining high.
Reports released last week revealed that, despite the weekly jobless claims by first-time benefit seekers being higher than economists expected, housing and manufacturing showed gains. According to analysts, this seemingly contradictory scenario is typical of an economy moving from recession into expansion, and may well be a trend that will continue for some time. The biggest factor in moving through this transition period and back on the road to economic stability will be whether consumers start spending again. The only non-essential market sector that has received a consumer-driven boost is the auto industry, believed to be as a direct result of the government’s Cash for Clunkers program, which officially ends tonight. The coming week sees the release of reports on homes prices, as well as personal income and spending which will give a clearer indication of how consumers are coping at the moment, which in turn will give Wall Street players a measure of direction with regard to investment options.
Meanwhile it has been reported that Senator Ted Kaufman (D., Del.) will be requesting the Securities and Exchange Commission (SEC) to carry out a “zero-based regulatory review” of US stock market structures. High frequency trading will come under the microscope amid claims that this high-tech trading method has an unfair advantage over retail investors and has contributed to the market becoming too fragmented. High frequency traders have generally welcomed the prospect of a review, convinced that it would highlight the merits of this form of trading, which accounts for more than 60 percent of the current stock trading volume. Other aspects of stock market trading related to high-frequency trading that are likely to be investigated by the SEC are dark pools and flash orders. Dark pools being private venues trading large blocks of securities anonymously, while flash orders allow some market performers the opportunity to act on stock orders prior to being routed to other venues for execution, both of which are surrounded by controversy.