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[BRIEFING.COM] Wednesday's spotlight rested upon new Federal Reserve Chairman Ben Bernanke. His testimony before the House Financial Services Committee was widely anticipated and closely watched. Upon the market's initial digestion, the indices reflected a modestly positive bias, but then gave back gains before managing to close moderately higher. The Fed Chief's comments essentially offered nothing surprising, and the market took comfort in that. His emphasized desire to maintain continuity with the Greenspan Fed further assuaged some of the market's anxiety that had built in expectation of his address.

Ultimately, however, he didn't do anything to dispel the market's sense of uncertainty as to when the monetary tightening cycle will end. While the Chairman did note that clear substantial progress has been made in removing monetary policy accommodation, his concession that monetary policy actions will be increasingly dependent on incoming data makes it clear that he will endorse further tightening if the data warrant it. The Chairman has not changed the perception that a rate hike is coming on March 28; his concern about strong economic growth suggests that incoming data may in fact lead to two more rate hikes, and Fed funds futures suggest another rate hike following that one is more likely than not. We remain concerned that if two more rate hikes are in fact coming, the stock market will have trouble posting significant gains through mid-year. The market does not seem as troubled by that as we are.

A separate factor that affected trade today was a 3.0% drop in the price of crude. Yesterday, oil closed below $60 per barrel for the first time this year. Today, crude finished at $57.83. The catalyst was a much better than expected inventory report from the Department of Energy. Last week, crude supply increased more than four times as much as the market had expected. Gasoline supply also rose much more than estimated, and distillate inventory unexpectedly rose. The energy price action incited some selling across the Energy sector (-0.3%), but, overall, it held up relatively well. Continued pullbacks in metals fueled more profit-taking across the Materials sector (-0.3%).

The energy price declines were supportive for the broader market. In particular, retailers built off of yesterday's momentum that strong retail sales data fostered, and transportation stocks outperformed.

Driven by strength in biotechs and some broad-based buying, Healthcare (+0.7%) led the market. A moderate advance in the Financial sector (+0.4%) further helped the indices rise. Brokers hit an historic high as expectations for solid M&A activity during 2006 continue to be fulfilled. To that end, Merrill Lynch (MER 75.26 +0.10) and BlackRock (BLK 152.01 +6.05) confirmed their plans to merge today. Merrill will combine its investment management business with BlackRock's for a 49.8% stake. Both boards have approved the deal to form one of the world's largest asset management firms, which should close during Q3. The corporate front was a relatively quiet one, and took a back seat to the economic front that Bernanke dominated. With the understanding that Fed policy will be increasingly dependent on the data, the focus is likely to remain there. In particular, the market awaits January PPI on Friday and January CPI on Wednesday.NYSE Adv/Dec 2068/1187...Nasdaq Adv/Dec 1877/1145