Cardinal Trading: US stock markets leapt on investor bets that the Federal Reserve will come to the rescue with more stimulus.
Cardinal Trading: After a week of precipitous falls on stock market indexes in the US, Europe and Asia, the hope of a coordinated rescue mounted by the world’s leading central banks fueled a sharp surge in US equities on Friday with the Dow Jones Industrial Average gaining almost 300 points at one point during the session.
Chief economist at Cardinal Trading, Johannes Feinberg said, “If ever proof were needed that the current high valuations in equity markets are almost entirely dependent upon the flow of cheap money, this relief rally provides it.”
Investors spent much of the week selling stocks on heavy volume as worsening economic data continued to flow in from Europe and the US. Even Germany, the most powerful European economy was unable to withstand the headwinds facing the EU and duly cut its growth forecasts for this year and next.
Greek bond yields spiked to as high as 9% as fears mounted over the country’s planned early exit from its bailout and investors worried that the EU could drift into a recession without full-blown quantitative easing from the European Central Bank.
“One could almost be forgiven for thinking that a perfect storm has been created that only central bank intervention can fix,” said a Cardinal Trading analyst.
Cardinal Trading says it doesn’t expect intervention form the central banks at the current stage. “We think it’ll take much more than a little equity market volatility to get them to commit to more QE but we have no doubts whatsoever that it’s on its way,” concluded Feinberg.
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