Although volatility has not gone away and downside risks have remained in the forefront over the past several months, stocks have continued to perform extremely well.
-Bob Doll, senior advisor, Blackrock
Market Gains Accelerate on Fed Easing Plans
The headline news last week was the US Federal Reserve's announcement of a new round of quantitative easing in which the central bank plans to purchase $40 billion of mortgage-backed securities on a monthly basis (without a predetermined end date). The Fed also pushed back the timeframe on how long it will maintain its current zero-interest-rate policy, indicating that the current level of rates should be in effect through the middle of 2015.
While the fact that the Fed announced new easing plans was not unexpected, the aggressiveness of the plan and its open-ended commitment came as a positive surprise to observers. Equity markets jumped on the news, with the Dow Jones Industrial Average climbing 2.2% to 13,593, the S&P 500 Index rising 1.9% to 1,465 and the Nasdaq Composite advancing 1.5% to 3,183 for the week. In contrast to market action following previous Fed easing announcements, last week also saw a significant selloff in bonds and an increase in inflationary expectations.