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The most hated rally in history just made a stronger case for itself. Equities rallied across the board this week after Mario Draghi, president of the European Central Bank, announced a new bond purchasing program.
The program is unlimited in scope and called “Monetary Outright Transactions.” It will direct its attention on the secondary sovereign bond market in order to bring down yields of insolvent eurozone countries. The ECB will buy bonds with maturities of up to three years, and the buying will be sterilized. “We need to be in a position to safeguard the monetary policy transmission mechanism in all countries of the euro area,” Mr. Draghi said, repeating that the ECB would stay “firmly within our mandate” of keeping stable prices, according to Bloomberg.
The announcement brought down Spanish yields to a three-month low, while European banking stocks surged on high volume. The effects were also felt in the U.S. financial markets. The Dow Jones Industrial Average jumped more than 200 points, while the S&P 500 gained nearly 2 percent to reach new highs not seen since 2008. Meanwhile, the Nasdaq hit fresh 12-year highs, reminding investors about the previous dotcom bubble. All ten sectors of the S&P 500 posted gains, with Materials and Financials making the biggest moves. In fact, financials are at their highest level in more than four years.
Every member of the Dow traded in the green, with the banking sector leading the way. In afternoon trading, Bank of America (NYSE:BAC) and JPMorgan Chase (NYSE:JPM) both jumped more than 4 percent on heavy volume. Other major banks such as Citigroup (NYSE:C), Wells Fargo (NYSE:WFC) and Goldman Sachs (NYSE:GS) also increased more 3 percent.
On Thursday, JPMorgan, America’s largest bank by assets, also become the focus of a U.S. Senate panel probe led by Carl Levin, due to its derivative bets made public earlier this year. Bloomberg reports, “Levin’s Permanent Subcommittee on Investigations is seeking testimony from people who worked in or helped lead JPMorgan’s chief investment office, according to the people, who declined to be identified because the inquiry isn’t public. The unit’s London staff lost at least $5.8 billion this year on the botched bets, which were large enough to shift markets.”
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