You wouldn’t know it by looking at the closing numbers, but Wall Street endured a wild ride on Thursday as investors digested an announced expansion of the European Central Bank‘s aggressively stimulative policy stance.
In the end, the Dow Jones Industrial Average lost a fraction, the S&P 500 gained a fraction, the Nasdaq Composite lost nearly 0.3%, and the Russell 2000 lost 0.8%. Treasury bonds came under pressure, the dollar was weaker, gold gained 1.2% and crude dropped 0.71% to close at $38.02 a barrel.
Energy prices were hit by reports that an OPEC and non-OPEC production freeze meeting will likely be delayed into the first half of April because of ongoing concerns Iran won’t join in unless its production cap is its pre-sanctions level of 4 million barrels per day rather than the 2.9 million barrels it pumped in January.
ECB chief Mario Draghi once again seemed to deliver: The ECB cut all three of its key interest rates, expanded its bond buying program by $22 billion to $88 billion per month and delivered a surprise by broadening its purchases to include non-bank investment-grade corporate bonds and unveiling a new four-year bank loan program (at rates as low as -0.4%).
And, initially, stocks opened higher — but then doubts crept in. After all, both the ECB and the Bank of Japan have been throwing as much cheap-money stimulus at their moribund economies as they can, and it just doesn’t seem to be working anymore. Moreover, in his press conference, Draghi said rates were unlikely to fall deeper into negative territory due to potential complexities (which, for instance, includes things like cash hoarding).
All of this cast a pall on the efficacy of extreme monetary policy stimulus at this point as well as the limitations of further measures from here.
Materials were able to lead the way with a 0.5% gain thanks in large part to further gains in precious metals mining stocks as investors seek a safe haven from all the fiat money abuse going on. Edge subscribers enjoyed a 3.5% gain in Barrick Gold Corporation (USA) (NYSE:ABX), which is up nearly 90% since recommended back in November. First Majestic Silver Corp (NYSE:AG) gained 7.9% to bring its gain to 82%.
Technically, with the Dow Jones seemingly unable to push above the 17,000 level — as it hits downtrend resistance from its two-year topping pattern — a test of support at 16,000 now seems likely over the next week. This should pressure the Federal Reserve into delivering a dovish surprise at its policy announcement on March 16, reducing its rate hike forecast to more closely align with the one-and-done forecast from the futures market.
How the market responds to that announcement will likely set the tone for the rest of 2016 with a bullish scenario seeing an easier Fed boosting crude oil and weakening the dollar — two huge factors weighing on corporate earnings growth lately.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.
