After a rocky few weeks, the Dow Jones Industrial Average
Year to Date
S & P 500
Source: Yahoo! Finance.
Investors in search of explanations for the newfound market optimism should focus on three key developments that emerged in the past 24 hours.
A glimmer of hope for Europe
Mario Draghi, president of the European Central Bank, hinted at the idea that interest rates could be cut or other measures taken to boost economic prospects in the floundering European economy. Basically, all of the tools at the disposal of policymakers are on the table. As a result, investors feel optimistic that something constructive will be created from these tools. Now, the markets must wait and see what actions will be taken.
A Spanish bank bailout
Europe's economic laggards, including Greece, Ireland, and Portugal, have all received a rescue from the EU at this point, but Spain's done everything possible to distance itself from this uninspiring group. All the while, however, Spain's borrowing costs are soaring to dangerously high levels. The difference (spread) between Germany's and Spain's 10-year bond yields widened to a devastating 5.4% last week. As a result, Spain found itself up against a wall yesterday, and for the first time it urged the EU to throw a life raft to the banking sector through additional funding.
Fed curbs the fear factor
Finally, today's market enthusiasm stemmed from the prospect of additional stimulus to jolt our own economy. In the words of the Atlanta Fed President Dennis Lockhart, "Further monetary actions to support the recovery will certainly need to be considered." In response, investors bought up shares of highly cyclical Dow companies like Bank of America
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Isaac Pino owns no shares in any of the companies mentioned in this article. The Motley Fool owns shares of Bank of America and has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.