The Markets
"Within our mandate, the ECB is willing to do whatever it takes to preserve the euro and, believe me, it will be enough."
--Mario Draghi, European Central Bank (ECB) President
It's quite amazing how one sentence from one man can help spark a major rally in stocks, bonds, and the euro currency. Draghi's comments last Thursday in London represent a significant ramping up of the ECB's willingness to use its resources to hold the euro together and investors responded enthusiastically. On the day of Draghi's comments:
- The euro and the British pound each gained more than 1 percent against the U.S. dollar.
- Stocks were positive in nearly all European markets.
- Italian and Spanish indexes each jumped more than 5 percent.
- The Spanish 10-year bond yield dropped nearly half a percentage point from the day before and the 10-year Italian bond yield was down a similar amount.
- The S&P 500 index rallied 1.6 percent.
Sources: The Wall Street Journal; CNBC
Between Draghi in Europe and Fed Chairman Ben Bernanke in the U.S., central bankers seem to be exerting an outsized influence on the markets. Normally, you expect markets to roughly trend with corporate earnings.
Speaking of earnings, several high-profile companies including Amazon, Facebook, and Starbucks, fell short on their second quarter earnings numbers released last week, according to CNBC. Overall, earnings for the companies reporting so far this quarter have been a bit on the light side, according to CNBC.
While earnings ultimately matter in the long run, today's markets seem focused on the support provided by central banks. And, yes, an up market is an up market regardless of what's propelling it. However, for long-term sustainability, we need the markets to go up based on their earnings growth - not artificial stimulus.
Data as of 7/27/12
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1-Week
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Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
Standard & Poor's 500 (Domestic Stocks)
|
1.7%
|
10.2%
|
7.3%
|
12.2%
|
-1.0%
|
4.4%
|
DJ Global ex US (Foreign Stocks)
|
0.9
|
1.4
|
-16.9
|
2.3
|
-6.6
|
5.8
|
10-year Treasury Note (Yield Only)
|
1.6
|
N/A
|
3.0
|
3.7
|
4.8
|
4.5
|
Gold (per ounce)
|
2.7
|
2.8
|
-0.4
|
19.2
|
19.6
|
18.2
|
DJ-UBS Commodity Index
|
-1.9
|
2.0
|
-13.1
|
5.1
|
-3.4
|
4.0
|
DJ Equity All REIT TR Index
|
1.0
|
17.2
|
13.6
|
29.4
|
4.9
|
11.3
|
Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron's, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.
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