As the Federal Reserve demonstrated on Wednesday, major central banks are again in dovish mode.
Coming just days after the European Central Bank signalled an unexpectedly generous package of monetary measures and a rate cut to zero to arrest a flagging eurozone economy, and with the Bank of England following suit to leave UK rates on hold earlier on Thursday, the Fed has also read the signs that the global economy's recovery is faltering and needs help.
The main surprise of the Fed's statement this week was that the central bank no longer envisages up to four rate hikes - worth at least 100 basis points - during the course of 2016. Rather, it curbs this at no more than two hikes.
"This statement could have gone either way - by highlighting strength in the US labour market and (inflation) data or emphasising weaker external factors. It was the latter which won the day as global economic and financial developments were believed to continue to pose risks," remarked Alastair George, analyst at Edison Investment Research after the Fed decision.
George said a rate hike in June remains on his radar, albeit now it all looks like being fewer rate hikes and less of a monetary punch in terms of basis points.
But by slowing down the exit from stimuli - the bedrock of central bank and governmental policy since 2008 - it does not necessarily mean that the Fed is in any better place to counter the fresh challenges of the Chinese economic slowdown than the ECB is to boost its struggling European economy.
Canada’s prime minister Justin Trudeau, made that plain in a Bloomberg interview on Thursday. He remarked that Canada - a nation that weathered the credit crisis remarkably well and whose banks were less vulnerable to a rating cut than those below its southern borders - simply cannot rely on central bankers to boost growth.
"We should be using fiscal levers a little more and not just expecting monetary policy to have to fix the challenge we’re in," he was reported as saying.
And he added more alarmingly: "I think we’re approaching the limit of the impact of monetary policy alone."
Canada’s government is due to present a budget next week, and analysts expect it will lay out plans for a larger deficit.
But Trudeau is not alone in worrying that central banks alone cannot restore the financial stability we all need. Economists have been openly expressing that view for some time.
Depending on whether markets think central bankers are ahead of the curve or chasing the curve, equity markets have always had a rather ambivalent response to monetary largesse or tightening cycles. On the one hand, a rate cut (or expectations of fewer rate hikes) have boosted stocks, especially those likely to need to borrow. But on the other hand, rate cuts or fewer hikes to come have also panicked investors into fearing that the economy is sliding into recession, which leads stocks lower.
Immediately after the Fed decision on Wednesday and well into Thursday, Wall Street shares have enjoyed a rally - one in part thanks to oil prices rising as high as $40 a barrel this session. Oil was expected to rise on news of a dovish stance from the Fed.
"Markets have correctly read this as a very dovish stance by the Fed, with the US dollar weakening, bond yields falling and the Fed funds futures lowering expectations of Fed rate increases, and gold and oil prices soaring. We continue to project a Fed rate hike in June and two for the year. But the Fed’s posture on policy adds potential risks of surprises," remarked Mickey Levy, chief economist, Americas and Asia at Berenberg Capital Markets in New York.
But tech, biotech and other growth sector companies who need to borrow may also take comfort from the sharp decline in median forecasts of where interest rates ought to be in the future among voting Federal Reserve bankers.
In December, when the central bank hiked rates for the first time since 2004, the median view of the Federal Open Market Committee members was for the appropriate Fed funds rate to be at 1.6% by end of 2016. An alarming lift from the 0.25% it was nestled at in November. But on Wednesday that forecast was cut to 0.9%.
Similarly, for end 2017 the Fed sees rates at 1.9% rather than 2.4% and for beyond 2018 at 3.3%, down from 3.5%.
But we have to ask whether that means that tight grips on fiscal measures will result in subdued rates for longer and how exactly it gives stocks what they need most - economic growth.
Beyond the Fed what individual stories made their mark on stocks?
RISERS
Caterpillar (NYSE:CAT) shares rose by 2.1% to $75.90 as markets looked beyond downbeat first-quarter forecasts from the heavy equipment maker to the full-year forecasts which the company stands by in spite of lower commodity prices.
FALLERS
McKesson (NYSE:MCK) shares dropped by 2.8% to $151.69 after the drug distributor said key customer losses meant it will cut 1,600 jobs or 4% of its US workforce.
Valeant Pharmaceuticals (NYSE:VRX) shares continued their losing streak this week, falling a further 11.5% to $29.67 when creditors demanded new, tougher terms after the drugmaker delayed filing its annual financial statements, according to Reuters.