Markets Rally On Fed Reassurances

Investors are a skittish lot. None of the US economic parameters have changed significantly recently, but markets are experiencing significant swings. The explanation is that Ben Bernanke was understood to be about to pull the plug on the $85 billion monthly purchases of bonds and mortgage based securities. The idea was that this cataclysm would start as early as September and would see the complete phasing out of the measures by the end of next year. Belief that this would happen sent the share prices lower only for them to rise when reassurances were given.

The latest set of reassurances has come from the recently released minutes of the Federal Reserve Board meeting. The position of Bernanke has consistently been that the measures will remain in place until the economic recovery in the US has finally gathered strength and unemployment has fallen below 6.5% from their current level of 7.6%. Even then, it has been clear that the economy would not be expected to go “cold turkey”. Mr bernanke characterised the Federal Reserve’s current policies as being “highly accommodative” and implied that it would remain so for the foreseeable future.

It seems that investors have taken heed of these strong hints and the Dow Jones Industrial Average again closed at a record high of 15461 on Thursday, making 1.1% on the day. The S&P 500 index is broader-based and it put on 1.3% to close at a fresh record of 1675. Both indexes topped records set in May, before the current round of jitters struck. The Nasdaq Composite index also performed well making 1.4% on the day to close at 3578, its best level for 13 years. If nerves hold, the Bull run should go on for some while yet.