Europe to the Rescue: Stock Market Rallies on Stabilizing Factors from Europe
Wow. That’s all anyone can say who has been watching the stock market in the last couple of weeks. It has been a series of up and downs. And today (at least right now) appears to be an up day. The stock market is rallying on news of a massive bank bailout effort from Europe, reports Bloomberg:
“The measures that they’ve said they’re going to take are important,” said Quincy Krosby, who helps manage about $380 billion as chief investment strategist at the Hartford in Hartford, Connecticut. “When we say stabilize the financial system, we’re talking about money flowing, banks lending. That’s what the market is waiting for.”
Is the European bank bailout an example of what the U.S. should have done?
The question many people are asking right now is how Europe managed to do something that the largest economic power the world has ever seen hasn’t been able to really pull off after weeks of wrangling: Instill serious confidence in the market.
Indeed, the move by Europe’s governments to shore up their banking systems by buying equity in the banks themselves (rather than buying practically worthless assets) appears to be providing all sorts of confidence to the U.S. stock market. Investors are thinking that perhaps Europe has a solution that will stabilize global financial market and increase liquidity. (The Libor — an indicator of confidence and liquidity for banks — finally dropped after the news in Europe.)
But this is only day one. We don’t really know if the confidence we’re seeing today will remain in place. After all, there have been some rallies in the past couple of weeks, albeit not as large as the one being seeing today. And there are still plenty of questions that need to be answered before the European plan is actually practicable.
But for now, it appears that the U.S. stock market is placing its confidence in Europe’s leadership, rather than the leadership of its own country’s officials.
Tags: stock market, stock market news, investing blog, stock market rally,
economy, Europe bank rescue, Libor
October 14th, 2008 at 8:27 am
[…] an ordinary person, this plan seems much better than others proposed. It follows along the lines of plans unveiled in Europe earlier. Instead of focusing on buying assets that are next to worthless, the government will instead have […]
October 14th, 2008 at 9:56 am
[…] current plan echoes plans being adopted in European countries. It involves government purchase of preferred (not voting) stock in banks. There is room for small […]