Things finally seem to be moving in the right direction, much to the joy of investors around the globe. With the Fed and the ECB preparing to take concrete steps to counter the sluggishness that U.S. and European economies have demonstrated since the global economic downturn of 2008, confidence seems to be at peak levels as the Dow Jones Industrial Average and the S&P 500 ended last week at highs last seen in December 2007.
Bank stocks led the rally with Bank of America (NYSE:BAC) and Citigroup (NYSE:C) seeing their share value increase by about 8.5% each over the week – the most among American banks. The KBW Bank Index was up almost 5% for the week.
European banks outdid their American competitors at the stock market, though, with RBS (NYSE:RBS) gaining almost 15% last week, followed by 12.5% and 10% gains by Barclays (NYSE:BCS) and Deutsche Bank (NYSE:DB) respectively. The Swiss banks also did well with a greater than 9% leap in stock price for Credit Suisse (NYSE:CS) and UBS (NYSE:UBS).
Bank stocks started the week on a strong note with investor confidence boosted by the European Central Bank’s (ECB) decision to initiate a direct bond buy-back program to bail-out the troubled Spanish and Italian economies. As the week progressed, the German constitutional court cleared the European Stability Mechanism (ESM) paving the way for the ECB to establish the ESM and initiate the buy-back program.
Back at home, the Federal Reserve gave investors another reason to cheer with the announcement that the third round of quantitative easing will kick-off soon with. The QE3 is expected to be open-ended with the Fed pulling out mortgage-backed securities worth up to $40 billion each month from the system till things look better for the U.S. economy. It also revealed its intention to keep interest rates at the current low levels at least till mid-2015 – further adding to the celebration.