Thursday, 01 December 2011 03:49 Last Updated on Thursday, 01 December 2011 03:51
On Wednesday, the Federal Reserve - along with other central banks from the eurozone, England, Japan, Switzerland and Canada - announced a coordinated plan intended to make it cheaper for banks around the world to borrow U.S. dollars. Markets reacted positively to the news of the Fed action to boost liquidity and support the global economy, as well as other encouraging economic reports. Major stock market indices moved strongly upward on Wednesday, with the Dow Jones Industrial Average gaining 4.2% - enough to return to positive territory for the year, up 2.36% since the beginning of January. The S&P 500 gained 4.3% but remains down 3.1% for the year. The Nasdaq climbed 4.2%, bringing its year-to-date return to 4.3%.The contingency measure allows these central banks to offer liquidity in foreign currencies if warranted by market conditions, according to the Fed, which could be useful if the European debt crisis escalates. At the same time, the People's Bank of China announced a plan to increase liquidity by lowering its reserve requirement for financial institutions, freeing up funds to stimulate China's economy.
The markets also anticipated good news ahead of several economic reports. For example, the job market showed signs of improvement as private-sector payrolls surged and planned layoffs eased in November, raising hopes for a positive government employment report on Friday.
In addition, the number of Americans signing contracts to buy previously owned homes rose more than forecast in October as buyers took advantage of falling prices and low borrowing costs. Pending used home sales climbed 10.4%, the largest gain since November 2010, and higher than economists had predicted. Three of four regions in a National Association of Realtors report showed an increase in contracts from a month earlier, led by the Midwest. The West experienced a 0.3% decline. Data showed housing is growing more affordable with mortgage rates at record lows and price drops, although unemployment levels and tight lending are still keeping others out of the market.
Investors also appeared thankful for a robust post-Thanksgiving shopping period, as Black Friday and Cyber Monday sent consumer spending to new heights. Preliminary data by market research firm comScore showed that Monday was the highest-grossing online shopping day in U.S. history with spending reaching $1.25 billion, besting the previous record set in 2010 by more than 20%. Overall, online shopping in November was up 15% over last year.
In periods of market volatility, whether good or bad, it's important to maintain perspective and avoid emotional decisions. I'll continue to stay in touch with you about market events and any implications they may have for your portfolio. In the meantime, please contact me with any questions.
