Thanks to the announcement that the U.S. central bank will continue to pursue a loose monetary policy, stock prices on global markets rose sharply last week, with the Dow Jones and S&P 500 indices on Wall Street reaching all-time highs.
On Wall Street, the Dow Jones index strengthened by 2.2% last week, to 15,464 points, while the S&P 500 jumped 3% to 1,680 points, and the Nasdaq index rose 3.5% to 3,600 points.
The strong surge in stock prices is attributed to the statement by Fed Chairman Ben Bernanke that a loose monetary policy is necessary for some time to come and that the unemployment rate of 7.6% may overestimate the situation in the labor market. This was interpreted as an announcement that bond-buying programs would continue at the current pace until the labor market significantly improves.
“This alleviated investors’ fears. Until now, there was speculation that the Fed would begin to taper its stimulus as early as September, and now there is hope that it might stay in the market longer,” says Tim Ghriskey, director at Solaris Group.
As a result, the S&P 500 and Dow Jones indices broke through to new all-time highs, above those reached in May.
At the end of May, Bernanke himself triggered a drop in stock prices from record levels by stating that at one of the upcoming Fed meetings, central bank leaders would decide on tapering the $85 billion monthly monetary stimulus programs if the economic situation improved.
This caused a sell-off in stocks as investors feared that reducing these bond-buying programs, which have long supported stock price growth, would lead the market to lose strong support.
