Courtesy of John Nyaradi.
Major stock indexes and ETF rally on the prospect of more “free money” from the Federal Reserve and more consumer debt.
In a relatively quiet day on Wall Street, major stock indexes and ETFs reclaimed some of yesterday’s losses on the prospect of more free money from the Federal Reserve and improving employment reports from ADP and a boost in consumer credit.
The Federal Reserve announced today that consumers added $17 Billion in consumer debt in January which exceeded analysts’ expectations and was centered in non-revolving credit items like cars, boats trailers and, especially, student loans. The news prompted some analysts to say that a bubble in student loans, a “sub-prime bubble,” was being formed as more and more students take on loans that they won’t be able to repay in today’s depressed job market.
A second factor supporting higher stock prices today was the hint from the Wall Street Journal that the Federal Reserve is considering a new form of quantitative easing, “sterilized” quantitative easing, to stimulate economic demand and employment. This scheme contemplates that the Fed would buy mortgage or long term Treasury bonds and then borrow the money back at low rates, thus keeping inflation down because the money wouldn’t be in general circulation but at the same time keep interest rates low.
And, finally, stocks and ETFs rose today on the prospects that tomorrow’s Greek bond swap will be successful and that we won’t wake up facing a “Lehman 2.0″ event in Europe.
ETF Summary:
SPDR S&P 500 ETF (NYSEARCA:SPY) +0.7% on hope for more free money
Russell 2000 Index ETF (NYSEARCA:IWM) +0.94%, rebounding from the recent sell off but still locked in a significant downtrend.
PowerShares QQQ ETF (NYSEARCA:QQQ) +0.8%, as the tech sector remained strong.
SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA) +0.6%
Bottom line: Global stock markets like free money and rallied today on the prospects of Dr. Bernanke refilling the punch bowl. Tomorrow is a big day in Europe with the Greek bond swap coming to a conclusion, one way or other.
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