U.S. stocks broke their 4-day losing streak Thursday, buoyed by comments from European Central Bank President Mario Draghi that the monetary institution "is ready to do whatever it takes to preserve the euro." Draghi's comments at an investor conference in London signaled that the ECB will move aggressively to increase economic growth in Europe and provide the liquidity needed to boost ailing countries like Spain and Italy.
The Dow Jones Industrial Average (DJI) gained 211 points to close at 12,887 and the S&P 500 Index (GSPC) ended the session up 22 points to 1,360. The Nasdaq Composite Index (IXIC) rose 39 points to 2,893.
Draghi's comments come on the heels of reports that the Federal Reserve will expand its stimulus program — otherwise known as quantitative easing — as soon as next week. Federal Open Market Committee officials are meeting next Tuesday and Wednesday and are expected to announce another round of asset purchases, or QE3. Additional action could include an acquisition of mortgage-backed securities on the Fed's balance sheet for the first time since 2010. The New York Times reports that some FOMC members will try to delay any new QE announcements until September when more economic data will be available for analysis. In his testimony last week to Congress, Fed Chairman Ben Bernanke said he was willing to take further action to improve the economy.
Neel Kashkari, PIMCO's head of global equities, says more QE will be welcomed by the markets but won't solve the bigger concerns weighing down the U.S. economy.
"The good short-term possibility at least for stocks is the possibility of QE3…which would generate a lot of liquidity…lifting the prices of risk assets," Kashkari said in an interview with The Daily Ticker on Wednesday. "We don't think the Fed is going to be able to do much to engineer real sustainable economic growth because borrowing costs for consumers, businesses and the government are already so low. Marginally reducing borrowing costs from here is unlikely to lead to real economic growth."
Kashkari says the Fed may have failed at its two mandates — price stability and full employment — but inaction by Congress and the Obama administration has left the central bank as the only "actor in town" to pursue pro-growth economic solutions.
"Even though [Fed officials] know their tools are imperfect, and may have unintended consequences, I believe they feel it's better to do something than to do nothing," he notes.
Like many money managers, Kashkari believes the ongoing eurozone debt crisis and looming U.S. fiscal cliff could still negatively shock global markets. His approach has been to invest in high-quality U.S. companies that can withstand more downside economic pressures and those that offer attractive dividends such as Microsoft (MSFT), Intel (INTC), Wal-Mart (WMT) and Spirit Airlines (SAVE). Overall, Kashkari remains bullish on stocks for the long term and sees more investing opportunities in the U.S. than in overseas markets.
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