“Within our mandate, the ECB is willing to do whatever it
takes to preserve the euro and, believe me, it will be enough.”
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
- 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
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.
The rest of the report can be found here.
Please be sure to visit the Parks Wealth Management website at www.parkswm.com
James T. Parks, CFP®, AEP, AIF
President and Wealth Advisor