With the help of central bankers and their increasingly aggressive attempts to stimulate growth and ward off crises, investors felt comfortable returning to invest in risk assets in September. But questions about the longer term outlook linger.

Investors rediscovered their appetite for risk during September, the final month of the third quarter, but only with the help of major initiatives by central bankers in both Europe and the United States. In the eurozone, the pledge by Mario Draghi of the European Central Bank to do “whatever it takes” to preserve the euro took on a concrete form in the shape of a program of bond buying aimed at alleviating the soaring sovereign debt yields in Spain and other peripheral economies. In the United States, the Federal Reserve embarked on a third round of quantitative easing, this one open-ended in size and scope and aimed at reviving the still dismal job market.

As may economists and other pundits had anticipated, those initiatives were good news for many financial assets, even if their benefits for their respective economies have yet to be demonstrated. The Standard & Poor’s 500 stock index rallied 5.8% during the third quarter, and other major U.S. indexes also posted solid gains. Spanish stocks roared higher in September, along with emerging market equities.

What remains unclear is what happens next. In the United States, the presidential election is only a month away; the victor will confront the need to deal with the looming “fiscal cliff” and other economic issues. In Europe, the ECB has pushed well beyond its traditional role to do what it can to stem the eurozone’s crisis, but for the region to demonstrate some serious improvement legislators will have to step to the fore there as well.

Looking beyond the financial markets to some of the data that reflect what is happening in various parts of the global economy, it is clear that the policymakers will have their work cut out for them.

 
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