Stocks were down early until rumors apparently started to swirl and were confirmed by a Guardian (UK) report that France and Germany had agreed to leverage up the EFSF bailout fund to 2 trillion euros from 440 billion. Just before the close, Dow Jones said the 2 trillion figure was not at all correct, so we’ll see what shakes out. Confusingly, the Guardian report is exactly counter to Angela Merkel’s statement earlier that leveraging the EFSF was off the table. It could be that the EFSF will guarantee some portion of new Greek and Italian debt, say the first 20% of losses. That way, the total amount of bonds issued that are partially guaranteed could be 2 trillion.
Either way, the market broke decisively out of its 2 month trading range and that bodes well for the near future, though the S&P 500 has already jumped up 11% from the closing low on Oct. 4.
The other worry has been slowing economic growth in China, the U.S. and Europe. The news out of China yesterday was decent and reports seem to indicate that the U.S. is not slowing as much as previously thought. Southern Europe will be slow due to austerity packages but northern Europe need not be so slow, especially in the banks are recapitalized.
We could see a nice rally continue.