Stocks posted their best weekly showing of the year erasing almost half of the losses that occurred in May. The Dow Jones Industrial Average (chart) soared 3.59%, the Nasdaq (chart) +4.04%, the S&P 500 (chart) +3.72% and the Russell 2000 (chart) finished the week up 4.30%. This snapback rally was on the heels of China making a surprise interest rate cut on Thursday.
Up until this week, equites had been under immense pressure due to the European debt crisis and more recently our own country’s weakening economic picture. In last week’s blog I eluded to the potential of the global central banks stepping in and placing a floor under the markets with additional liquidity measures, and sure enough China was the first country to act. This was followed up by our own Federal Reserve reiterating to Congress thier commitment to intervene should the economy here continue to falter.
To sum up the latest actions by the global central bankers and it relates to equities, at the very least stability should come into the marketplace with the potential to recharge the bull run we had been on. In addition, I would expect that gold becomes a huge beneficiary from the heightened debt levels that are on the balance sheets of central banks around the world.
That said, at some point and time and probably sooner than later, the economies from around the globe will have to be able to stand on their own two feet. Central bankers can only do so much before the stimulus programs begin to have an overall negative effective on the economy and markets. Good luck to all.
Have a great weekend 🙂