Dow Jones Surges As Fears Of European Debt Crisis Subside
The Dow Jones surged Monday, reacting to a European Union instant cash loan for avoiding a European debt crisis. Early Monday, in sharp contrast to late last week, the Dow Jones today rose more than 300 points. The Greek bailout and fear that a European debt crisis could spread like wildfire around the world was enough to send investors running last week. On Thursday, when fear, panic and high speed trading triggered a mass sell-off of blue chip stocks, the stock market lost nearly 1,000 points.
Dow Jones today and the European debt crisis
While investors feared the $ 140 billion Greek bailout would trigger a European debt crisis and stifle a fledgling global economic recovery, Dow Jones today sharply contrasts last week's dive. According to a report by the Associated Press, Dow Jones was climbing slowly and steadily on news that the economy, for three straight quarters, has been growing and job creation is gaining. But last week, the stock market dropped four straight days as volatility returned to Dow Jones today. It was a common sight to see big swings like this when the U.S. credit crisis grew in late 2008 and the stock market bottomed out in early 2009, which explains why investors are playing it safe.
The Greek bailout and Dow Jones
Despite the Greek bailout, European leaders appear incapable of making decisions to keep debt-ridden countries from defaulting, and around the world the Dow Jones and stock market have been in turmoil. According to Moody's Investors Service, Greece may have its credit rating cut to junk within the next few weeks. Greece, at Standard and Poor's, is already rated junk.
An averted European debt crisis?
As the euro dropped to a 14-month low last week and European leaders were finally spurred to act on the European debt crisis, Dow Jones surged. Using the euro as currency, the 16 nations agreed to offer financial assistance valued at almost $ 950 billion in loan guarantees from the European Union to countries under attack from speculators such as Portugal, Greece and Spain.
U.S. cavalry comes to the rescue
The U.S. Federal Reserve, along with other central banks, also offered a hand to help keep the European debt crisis from becoming a global financial crisis. As reported by the New York Times, the Federal Reserve will begin printing the dollars that will be exchanged for euros in order to provide some liquidity for European money markets and banks. The Fed said in a statement that the currency swaps were intended to make it easier for European institutions, companies and governments to borrow dollars when they need them, "and to prevent the spread of strains to other market and financial centers."
Stock market rebounds with Euro
Dow Jones numbers grew Monday as the rise in the euro and a drop in the dollar pushed the stock market higher. A weaker dollar increases the price of commodities traded in dollars because they become more attractive to outside buyers of the U.S. U.S. companies that do business overseas also benefit in earnings from a drop in the dollar. As investors returned to stocks on Monday, U.S. bond prices fell. Gold also fell. Both surged last week as investors ran from risky stocks toward safer assets.
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