This week began with a lot of unknowns. Will the Federal Reserve initiate another round of quantitative easing? Will the Dutch people elect a government unwilling to underwrite the continent's bailout? And finally, would a German court render the Dutch election moot by declaring the European Stability Mechanism unconstitutional?
While the first two questions remain unresolved, the last was answered in the negative this morning, sending markets flying higher. About halfway through the trading day, the Dow Jones Industrial Average (Index: ^DJI) is up by 30 points, or 0.2%. The question on every investor's mind is whether the recent gains can be sustained.
Europe, America, and the Dow
The outcome of the German ruling was an enormous relief for Europe's ongoing fight against a political fracture and, potentially, multiple sovereign-debt defaults. To put it in perspective, the ESM is essentially the European equivalent of our own Troubled Asset Relief Program, or TARP, the $700 billion bill spearheaded by then-Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke to stave off a complete financial collapse in the aftermath of the Lehman Brothers' bankruptcy.
Indeed, had the court declared it unconstitutional, the entire edifice of the monetary union could have dissolved. According to a policy expert quoted yesterday by the Financial Times, "If they kill the EMS, the next day the euro is gone."
Beyond Europe -- and arguably of similar short-term significance to domestic equity markets -- is the question of whether the Fed will initiate another round of quantitative easing. The bank began its two-day monetary policy meeting today in Washington, D.C.
In a speech two weeks ago, Bernanke seemed to intimate the Fed's inclination to do so after noting that "the economic situation is obviously far from satisfactory." As a result, according to my colleague Alex Dumortier, "The market is [now] in 'show me' mode." We should know the outcome of this tomorrow.
The day's winners and losers
While stocks are mixed in intraday trading, the big board shows significantly more green than red.
Among the stocks up today are AT&T (T +0.16%) and Verizon (VZ 0.18%). Needless to say, all eyes in the telecommunications space are currently on Cupertino as Apple (AAPL +0.54%) unveils the now-confirmed iPhone 5, which both of these carriers offer. We now know, for instance, that the new device will be both lighter and thinner than the previous version, while also sporting a screen that's large enough to accommodate a fifth column of app icons.
Leading the way down, alternatively, is Bank of America (BAC +0.02%), the nation's second-largest bank by assets. Although others have speculated paradoxically that this was because of an upward movement in long-term interest rates, the more likely explanation has to do with high-frequency trading. As I've noted before, B of A is one of the most heavily exchanged stocks on the markets.
Finally, in other news, McDonald's announced that it will begin listing calorie counts for all items on its menu. According to my colleague Matt Thalman, "The company believes the move will inform customers and help them make nutrition-minded choices." However, if the market's response to the news is any indication -- shares in the company are down on the day -- those choices may not be in the fast-food giant's pecuniary interest.
Foolish bottom line
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