If you take a look at the Dow’s performance today, something lit a fire under the market shortly after the market open and all benchmark indices ended the day 1.5% higher, with the Dow up 260 points. This is a big move considering the market has posted weekly losses for the past two weeks. So what happened to cause the market to jump today?
Well, shortly after market open, the European Central Bank announced its substantial stimulus program. This news was welcomed with cheers on Wall Street, as the European economies have been struggling. The Eurozone is expected to post less than 1% economic growth in 2014.
The ECB plans to purchase more than €1 trillion, or $1.16 trillion, in public and private sector bonds by September 2016. The ECB plans to buy €60 billion a month in assets starting in March, according to ECB President Mario Draghi. This is a historical decision aimed at fighting overall stagnation and deflation, with hopes of spurring on more inflation and reigniting economic growth in the Eurozone.
The stimulus plan will also ensure that interest rates remain near zero in the Eurozone, which is good news for the U.S. stock market. Foreign capital will continue to pour in the U.S. stock market, supporting domestic companies and high dividend-yielding stocks.
The only downside to the ECB announcement is that the stimulus’ plan will impact U.S. multinational firms that have significant exposure in European markets and are getting paid in depreciating currencies.
While this development will not impact the current earnings season, we will likely see sales drop off at these big multinational companies in coming quarters. So it’s best to take a closer look at those companies before diving in.