How Europe Sent the Dow Skyward This Morning

For months, investors have waited for European leaders to take action to try to resolve the financial crisis there. Today, they finally got their wish, as European Central Bank leader Mario Draghi outlined a program under which the ECB would purchase bonds from weaker-performing nations in an effort to reduce their interest expenses. Stocks in Europe vaulted higher on the news, and the good cheer spread across the Atlantic, as the Dow Jones Industrials (INDEX: ^DJI  ) gained 220 points by 10:45 a.m. EDT. Favorable news on the U.S. employment front also helped send every single stock among the Dow 30 higher.

Financial stocks were the biggest gainers in the Dow, with Bank of America (NYSE: BAC  ) and JPMorgan Chase (NYSE: JPM  ) both rising about 4%. In addition to the obvious relief that reducing tensions in the European bond markets has on the world financial system, B of A announced that it would sell its Strategic Partners medical-uniform business to a group of private-equity investors. The move continues B of A's long track record of divesting non-core assets to shore up its capital and refocus on its banking business.

A host of industrial stocks also performed well. Alcoa (NYSE: AA  ) was up almost 3% despite ongoing controversy about its aluminum plant in Italy. Yesterday, reports from Italian news sources suggested that commodities giant Glencore would make a formal offer next week to buy Alcoa's Sardinian plant, but the Italian government said that it can't guarantee that jobs won't be lost at the plant. Despite the ECB plan, economic conditions in Italy, Spain, and elsewhere in the more troubled areas of the eurozone don't appear poised for any immediate rebound.

Finally, Cisco Systems (Nasdaq: CSCO  ) also jumped more than 2.5%. The short-term rise probably came from Oppenheimer analysts reiterating their positive rating on the stock and citing success in reorganizing its corporate operations and building strong strategic partnerships as reason for optimism. Longer term, Cisco will have to follow through on its successes if it wants to re-establish its leadership role in the networking industry.

You can bank on it
When central banks move, stocks jump. But those short-term gains don't always last. Bank of America in particular has gotten hit with big ups and downs amid changing economic conditions. Is now a good time to buy, or are the big gains already in the stock's price. Get our take in the Fool's new premium research report on Bank of America, in which our top banking analysts look at where B of A is headed. Click here now to get started.

Fool contributor Dan Caplinger owns warrants on JPMorgan Chase. You can follow him on Twitter @DanCaplinger. The Motley Fool owns shares of Bank of America, Cisco Systems, and JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.


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  • Report this Comment On September 06, 2012, at 12:25 PM, Brent2223 wrote:

    Throwing gas on a dying fire makes for a pretty neat show, but doesn't last long and is kinda dangerous.

    Throwing more debt into a debt crisis.......

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