After closing down half a point yesterday, two hours into the trading day, American International Group (AIG -0.91%) is up by 1.35%, clearly following other financial stocks -- as well as the broader markets -- solidly into the green. With the general upward trend of late, is it safe to say we're past last week's central-bank-induced market nosedive?
When central bankers talk, markets freak-out
In case you missed it, last Wednesday, Federal Reserve chairman Ben Bernanke announced that the central bank might start tapering its program of monthly bond purchases later this year if economic data remained positive. This caused investors around the world to lose their minds out of fear that America's economic recovery would stall, which would then negatively impact the rest of the world's economy.
Throwing more gasoline onto the burning markets, a Chinese crack-down on its shadow banking system was causing fears of a credit crunch in the world's second-largest economy. After a hawkish statement on Monday that scared investors even more, on Tuesday, China's central bank made it clear in a second statement that it would backstop any banks experiencing cash shortfalls.
Foolish bottom line
Sticks and stones surely break bones, but this market mayhem caused by the central bank demonstrates the destructive power of words, as well. It's very early on, and the markets are still clearly very volatile, but it's possible investors have moved past their initial fears and adjusted to the fact that the world's central bankers haven't yet abandoned them.
News from the federal government may calm investors even further. Yesterday, the Department of Commerce announced that the U.S. economy had not, in fact, grown 2.4% in the first quarter of this year, but instead only 1.8%. In normal economic times, this would spark investor fears, but these are not normal economic times.
There's such worry that the U.S. economy can't get by without massive Fed intervention, that this news of slower growth might be perceived as good, since it means the central bank might not start dialing back quantitative easing on the timetable it laid out last week. We're through the looking glass, here, fellow Fools.
There's nothing going for AIG in particular that's bringing it back from the depths this week; it's clearly riding the market wave. Who knows: if more and more poor U.S. economic data continues to roll in, AIG's share price may skyrocket.
This is why here at The Motley Fool, we tell investors to take a long-term view of investing: to tune out market noise and tune into the fundamentals of the companies you're invested in. AIG has come a long way since the financial crisis, and there's plenty to recommend about it. So check in on AIG and your other stocks once a month, or even once a quarter, and leave the daily ticker checks to the day traders. Your portfolio will thank you, even if your broker won't.