Markets posted huge gains on Thursday, continuing to derive impetus from the positive outcome of the European Council meet that assured recapitalization of European banks and a larger rescue fund. Moreover, Europe is counting on Asia to aid the rescue effort and ensure a speedy resolution to the debt crisis. Adding to the cheer were domestic economic reports, which came in strong and helped lift the Dow beyond the 12, 000 mark.
The Dow Jones Industrial Average (DJIA) surged 339 points or 2.9% to settle at 12,208.55. The Standard & Poor 500 (S&P 500) jumped 3.4% to finish the day at 1,284.59. The tech-laden Nasdaq Composite Index leapt 3.3% and closed the day at 2,738.63. It was a hectic day for the Street with composite volumes coming in at 6.59 billion shares on the NYSE, substantively higher than this year’s daily average of 4.37 billion shares. Consolidated volumes on NYSE, Amex and Nasdaq clocked in at 11.95 billion shares, against last year’s daily average of 8.47 billion. These were the year’s eight highest volumes and also the highest since October 4th. On the NYSE, the advance decline ratio was 2,748 to 400.
With yesterday’s gains, the benchmarks look comfortably poised to post another week of gains, unless something drastic washes out all the gains on Friday. Additionally, the S&P 500 moved above its 200-day moving average for the first time since August.
Yesterday’s rally also saw the Dow breaking the 12, 000 barrier for the first time since August this year. In fact, none of the 30 Dow components had to move down into the red zone. Leading the gains for the index were Alcoa, Inc. (NYSE:AA), Bank of America Corporation (NYSE:BAC), Caterpillar Inc. (NYSE:CAT), General Electric Co. (NYSE:GE), Hewlett-Packard Company (NYSE:HPQ), JPMorgan Chase & Co. (NYSE:JPM), 3M Co. (NYSE:MMM) and United Technologies Corp. (NYSE:UTX) and they surged 8.1%, 7.0%, 5.1%, 5.4%, 5.2%, 7.3%, 5.7% and 4.3%, respectively.
Markets continued to be buoyed by the agreement on the European debt crisis that was concluded on Wednesday by European leaders including the continent’s heads of state, the International Monetary Fund (IMF) and bankers during the European Council summit. European leaders were in agreement about the need to recapitalize European banks and Germany agreed to support the initiative for leveraging the bailout fund. Yesterday, stocks also surged on news of European officials confirming the plan, by virtue of which, private investors will have to write-down half of their holdings of Greek debt. The emergency rescue fund will also be increased to roughly $1.4 trillion.
Also, as expected French President Nicolas Sarkozy spoke to Chinese President Hu Jintao hours after the deal. The French leader said that he discussed the rescue package with his Chinese counterpart as well as the priorities for the Group of 20 summit in Cannes, which is scheduled for next week.
Not only did European factors lift domestic sentiment, economic reports were strong enough to sustain the broader rally. Investors were more than happy to learn that gross domestic product had increased at a 2.5% annual rate in the third quarter of 2011, which was nearly double the 1.3% rate reported in the second quarter. This is also significantly higher than the mere 0.4% increase that was posted in the first quarter. According to the report from the Commerce Department: “The increase in real GDP in the third quarter primarily reflected positive contributions from personal consumption expenditures (PCE), nonresidential fixed investment, exports, and federal government spending that were partly offset by negative contributions from private inventory investment and state and local government spending.Imports, which are a subtraction in the calculation of GDP, increased”.
Additionally, initial claims decreased by 2,000 to 402,000 for the week ending October 22. The department of Labor also reported: “The advance seasonally adjusted insured unemployment rate was 2.9 percent for the week ending October 15, a decrease of 0.1 percentage point from the prior week’s revised rate of 3.0 percent”.
However, the National Association of Realtors (NAR) reported that the Pending Home Sales Index had dropped 4.6% to 84.5 in September from 88.6 in August. Nonetheless, it remained 6.4% above the September 2010 level of 79.4. The Chief Economist of NAR, Lawrence Yun, said: “A combination of weak consumer confidence and continuing tight lending criteria held back home buyers, even though the private sector added nearly 2 million net new jobs in the past 12 months”.
