Wednesday's massive rally was prompted by sudden global central bank intervention adding (printing money) liquidity (reducing the lending rate overseas to zero basically) to shore up sovereign debt in the eurozone. They basically set up a swap facility to do the job in the future. Is it a cure or a bailout? No, this is a handout. And it doesn't solve the problems the eurozone is facing. But, it must be said that the European leaders must have hit a dead end in talks and a potential financial panic must have seemed likely. Mind you, Mr. Bernanke is perfectly comfortable with reflation and money printing. He's been at it for a long time. It will take years for the Freedom of Information Act to discover how much money and to whom the U.S. has given free money. Americans and others will see price increases in all products and services as a result of a weaker dollar negatively affecting purchasing power. Beyond Moral Hazard issues this is the cost you'll see and perhaps even wonder why.
The rally was also reinforced by better ADP Data (206K new jobs vs 110K prior), the Chicago PMI (62.6 vs 58.4 prior), lower Unit Labor Costs (-2.5% vs -2.4%) and Pending Home Sales 93.3 vs prior 84.5). All were supportive to a more positive mood. The only unsettling data was the Fed Beige Book which showed continued slow to modest economic growth.