Markets Spike on Central Bank Action: What Investors Need to Know

What's happening in the headlines can affect you as an investor. Here's what's going on, what you need to know, and what you should do.

The cold, hard facts
The Financial Times is reporting that global equity markets are having their best three-day run since early 2009 as central banks around the world take action to boost liquidity throughout the global financial system.

Some context
It took only three minutes for Germany's Dax to jump almost 3% on news of the move, and by midday the S&P 500 (INDEX: GSPC) had advanced 3.4%, before eventually closing the day up 4.3%. The Dow Jones (INDEX: ^DJI) was slightly behind but still posted an astonishing 4.2% gain on the day. Britain's FTSE All-World has risen 7.1% so far this week.

The Federal Reserve and the central banks of the eurozone, the U.K., Canada, Japan, and Switzerland were all involved in the coordinated action. Even China joined in, having announced the first cut in reserve requirements for its banks in almost three years.

Also fueling the bullish behavior is some good jobs data out of the United States. An employment report by paycheck processor ADP (NAS: ADP) is showing the strongest private-sector jobs growth in 11 months, at 206,000.

What you need to know
"The move by the central banks will not solve fundamental problems in Europe and in the U.S.," Win Thin of Brown Brothers Harriman in New York told the Financial Times, "but at this juncture, coordinated actions by policymakers are welcome. Their action, combined with that of China's central bank, is giving a boost to markets today."

And that about sums it up. Take the market spike for what it is: another thrilling moment on the economic roller-coaster the world's been strapped into since 2008. The death of the financial crisis has been greatly exaggerated. Late on Tuesday, Standard & Poor's downgraded the credit ratings of some of the world's biggest banks, including Goldman Sachs (NYS: GS) , Bank of America (NYS: BAC) , Citibank (NYS: C) , and Barclays (NYS: BCS) . We still have a way to go.

At The Motley Fool, our advice in times like this is simple: Don't have money in the market you're going to need over the next three to five years, keep an eye on the fundamentals of the companies you're invested in, and stay calm. Like us, you're in it for the long term.

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At the time thisarticle was published Fool contributorJohn Grgurichloves the smell of newsprint in the morning, but he owns no shares of any of the companies mentioned above. The Motley Fool owns shares of Bank of America and Citigroup.Motley Fool newsletter serviceshave recommended buying shares of Automatic Data Processing and Goldman Sachs. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has a scintillatingdisclosure policy.

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