Last week was rather eventful, with Europe once again providing the catalyst. Early in the week, concerns about the eurozone sent stocks lower. However, by the close on Friday, the Dow was above 13,000.
The change in sentiment was brought on by the announcement by ECB President Mario Draghi that the European Central Bank stands ready to do whatever was necessary — and within the ECB mandate — to save the euro. As a result, the speculation is that moves might be made to bring down Spanish and Italian bond yields.
Once again, Germany offers a bit of a setback, insisting that the EU treaty doesn’t allow for a banking license to be given to the European Stability Mechanism. There had been hopes that the ESM would be provided a banking license and the ability to directly intervene with eurozone banks. However, that hope is fading. While pledging to support the euro politically, German officials have shied away from promising financial support.
Even so, Draghi’s confident words spurred market higher. It appears that eurozone leaders want to save the euro, and investors are starting to think that they may actually be ready to do what is necessary.
What about the Fed Meeting?
A Fed meeting is coming up as well. The recent news that real GDP growth in 2012 Quarter 2 was 1.5% is of great interest to many right now. The numbers represent a slowing from the revised first quarter growth of 2%.
Speculation is starting, once again, that QE3 could be around the corner. There is the possibility that the members of the FOMC could decide that the slowing economic growth could be grounds for more stimulus. Since investors would welcome more economic stimulus, the idea of QE3 is causing excitement, and is another factor to consider.
It is clear that there is a lot happening right now, and a lot to look forward to this week. Even though earnings have been lackluster, they aren’t having a huge impact on the markets. There is just too much going on with Europe, and too much speculation related to what’s next for the US economy.
There is a certain amount of exuberance right now. However, investors should be on the look out. Just as equities have shot up so quickly, the prices could just as easily collapse again. There is a lot of volatility in the equity markets, as well as other markets, right now, and bad news could cause a change in the situation quite quickly.