Rug About to Be Pulled Out From Under Stock Market?
If you’re betting that Mario Draghi has put a floor under the US stock market, you might also want to invest in a parachute.
The analogy may be a little dramatic, but Gemma Godfrey, head of investment strategy at Brooks MacDonald tells us that there’s a real reason to worry that Draghi is all talk and no action.
Last week Draghi, the president of the ECB, said he would do ‘whatever it takes’ to preserve the euro.
In turn, that’s generated expectations that Draghi planned to unleash some serious fire power. On the news the stock market surged.
“Now he has to deliver,” says Godfrey
But chatter is growing that when Draghi speaks later this week, what he’ll talk about is more bond purchases – and only bond purchases. If that’s all he says, Godfrey tells us, markets will be disappointed.
Perhaps, very disappointed.
“Central bank action is no longer able to support the markets,” she says. And bond purchases just won’t do it. This is what investors are concerned about. Can Draghi deliver the (necessary) firepower?”
By firepower Godfrey is talking about fiscal stimulus. (Fiscal stimulus is largely believed to be government spending by countries like Germany that can afford it.) But she also says to deliver fiscal stimulus Draghi faces hurdles that he just can’t scale – at least right now. They are:
- more fiscal unity
- more funds to contain crisis
“Will he be able to deliver on all 3 points. Unfortunately, it’s unlikely,” she says.
What do you think? We want to know!
Posted by CNBC's Lee Brodie
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Trader disclosure: On July 30, 2012, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Guy Adami is long C; Guy Adami is long GS; Guy Adami is long INTC; Guy Adami is long AGU; Guy Adami is long MSFT; Guy Adami is long NUE; Guy Adami is long BTU; Stephanie Link is long AAPL; Stephanie Link is long JPM; Stephanie Link is long WFC; Stephanie Link is long MCD; Jon Najarian is long AAPL CALL SPREADS; Jon Najarian is long CSCO CALL SPREADS; Jon Najarian is long WMT CALL SPREADS; Jon Najarian is long V CALL SPREADS; Jon Najarian is long F CALL SPREADS; Jon Najarian is long NXY CALL SPREADS; Jon Najarian is long SHAW CALL SPREADS; Jon Najarian is long BBY CALL SPREADS; Jon Najarian is long HLF CALL SPREADS; Jon Najarian is long GLUU; Jon Najarian is long CIGX; Jon Najarian is long CBOE; Jon Najarian is long CME
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