NEW YORK (ETF Expert) --The European Central Bank did not really surprise anyone with its well-telegraphed rate cuts on Thursday. Yet, risk assets of all shapes, sizes and geographic origins rallied a bit more than most had anticipated.
The reason? Not only did the ECB slash its overnight lending rate -- not only will they charge banks for depositing cash in ECB coffers (i.e. negative deposit rate) -- European authorities opened the door to unconventional asset purchases in the future.
Unconventional measures. Emergency stimulus. Quantitative easing. Whatever one chooses to call it, the ECB may eventually take pages from the scripts of Japan and the United States; that is, it may print money electronically and purchase market-based securities to stimulate economic activity.
Back in April, I suggested the ECB would ultimately agree to create euro-dollars electronically for the purpose of purchasing bonds and depreciating the euro-zone currency. (See Weaker Euro Presents ETF Admirers With Multiple Opportunities.) Many commented that Germany would never agree to such actions. Six weeks later, however, the probability of a QE-type intervention is increasing.
What does that mean for risk taking in general? At least for one trading session, it meant that investors would return to the riskiest areas of all. Micro-caps, small-cap growth, banks, biotech, alt energy and the Internet. High-flying momentum shares that had lost their luster over the last three months had recaptured the public imagination. After all, money from abroad can pour into U.S. assets just as easily as it can pour into European assets or emerging market assets.
|Everything Risky Is Good Again?|
|First Trust NASDAQ Community Bank (QABA)||2.4%||-3.3%|
|iShares Russell Microcap (IWC)||2.4%||-8.4%|
|iShares Russell 2000 Growth (IWO)||2.2%||-6.8%|
|SPDR Biotech (XBI)||2.1%||-15.5%|
|First Trust Internet (FDN)||1.5%||-13.0%|
|SPDR KBW Bank (KBE)||1.3%||-2.1%|
|PowerShares WilderHill Clean Energy (PBW)||1.3%||-18.6%|
|Vanguard Extended Market (VXF)||1.2%||-1.4%|
|S&P 500 SPDR Trust (SPY)||0.6%||3.8%|