Europe Gets Aggressive with Monetary Policy; Stocks Rise | Personal Capital
Must be a valid email address.
Password must be 8-64 characters.
Must be a valid phone number.
Recession incoming? Here’s how you can prepare.
Daily Capital
Home>Daily Capital>Investing & Markets>Europe Gets Aggressive with Monetary Policy; Stocks Rise

Europe Gets Aggressive with Monetary Policy; Stocks Rise

Market Digest – Week Ending 9/5

Unexpected stimulus measures from the European Central Bank, confusing truce talks in Ukraine, and a soft jobs report blended into mixed messaging for investors. Stocks struggled to find direction, but finished positive for the week, while bonds and most commodities declined. In an effort to stem deflation risk and encourage growth, the ECB cut its major lending rates by 0.1% and announced it will begin purchasing asset-backed securities. The Euro dropped to $1.29 per dollar, 14-month low.

Weekly Returns:

S&P 500: 2,008 (+0.3%)
FTSE All-World ex-US: (+0.5%)
US 10 Year Treasury Yield: 2.46% (0.12%)
Gold: $1,269 (-1.4%)
USD/EUR: $1.295 (-1.5%)

Major Events:   

  • Tuesday – The ISM manufacturing index in August rose to its highest level since 2011 Construction increased 1.8%, to its highest level in over five years.
  • Wednesday – Russian President Putin said he had agreed to the framework of a cease-fire between Kiev’s forces and pro-Russian rebels. Longer-term details were largely unclear.
  • Wednesday – Apple shares dropped 4% amid the announcement of two new Samsung Galaxy phones and security concerns about iCloud accounts after nude photos of Jennifer Lawrence were posted online.
  • Wednesday – Automakers continue to post strong results. Chrysler August deliveries rose 20% to the highest level in 12 years.
  • Thursday – The ECB cut its key lending rate to 0.05%, and announced it will purchase nearly 700 billion Euros of asset backed securities. It will not purchase sovereign debt at this time.
  • Friday – The US economy created 142,000 jobs in August, well short of expected. Unemployment fell to 6.1% as the labor force declined.
  • Friday – Shares of Tesla Motors fell 3% after CEO Elon Musk said the stock price was “kind of high”.

Our take:

The final impact of zero interest rates and massive asset purchases by the Fed won’t be known for a decade or more. So far, they seem to have helped the US economy regain its footing and escape catastrophe in the aftermath of the sub-prime crisis. Typically slower to react, the Euro-zone is now being more aggressive in following a similar path. Investors cheered this week’s rate cut and asset purchase announcement, with European stocks rising and bond yields falling.

It is worth noting Japan has been toying with similar tactics since their bubble-economy collapsed in the early 1990s, and with much less success. But for now, the ECB’s moves seem like a bullish driver for global stocks and could also help support bond prices, potentially proving wrong the consensus view that bond yields must rise.

According to Bank of America, 45% of the world’s government bonds now yield less than 1%. Coupled with low dividend rates, it’s a tough time for investors seeking yield. But cash is not a great substitute. Inflation remains subdued, but it can’t be ruled out as a possible outcome of unprecedented accommodative global monetary policy. It is a risk that should not be ignored. In a weird financial world, a healthy allocation to stocks and real estate may be the best defense for those with a longer-term view.

Image credit: Pixabay

The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

Craig Birk leads the Personal Capital Advisors Investment Committee and serves as Chief Investment Officer. His focus is translating improvements in technology into better financial lives. Craig has been widely quoted in the Wall Street Journal, Bloomberg, CNN Money, the Washington Post and elsewhere. Prior to Personal Capital Advisors, he was a leader within the portfolio management team at Fisher Investments, helping assets under management grow from $1.5 billion to over $40 billion. Craig graduated from the University of California at San Diego and has earned the Certified Financial Planner® designation.
Icon Close

To learn what personal information Personal Capital collects, please see our privacy policy for details.

Let us know…

This year, my top financial priority is:

Building my emergency fund
Paying off high-interest debt
Budgeting better
Saving for a short-term goal, like a vacation or new car
Increasing my investment contributions
Maintaining status quo - I’ve got this under control

Make moves toward your money goals with Personal Capital’s free financial tools.