US stocks surge
U.S. stocks soared Thursday as investors applauded the size and scope of the Federal Reserve’s latest effort to stimulate the sagging economy.
The Dow Jones Industrial Average was recently up 181 points, or 1.6%, to 11396, and is trading at its highest level since September 2008 when Lehman Brothers filed for bankruptcy. The blue-chip index earlier rose as much as 212 points, its first 200-point intraday rise since Oct. 5.
Caterpillar jumped 3.5%, Boeing rose 2.8% and Bank of America gained 2.8%, fueling the gains. Pfizer and Merck were the only Dow components trading in negative territory.
The Standard & Poor’s 500-share index jumped 1.5% to 1216, led by the energy and materials sectors. The technology-heavy Nasdaq Composite gained 1.2% to 2571.
Investors pushed stocks higher as they digested the Fed’s announced plans on Wednesday to purchase an additional $600 billion of longer-term Treasury securities by June in a second round of quantitative easing, dubbed QE2. The central bank also will keep reinvesting principal payments from its securities holdings.
“I’m a little surprised that there wasn’t a ‘sell the news’ reaction, but people are clearly relieved at the size of the quantitative easing package,” said Ben Halliburton, chief investment officer at Tradition Capital Management. “Although QE2 is good for asset prices, the reality is it will likely have little impact on the employment picture. Basically we’ve had a recovery in stocks and corporate profits, but it still hasn’t trickled into jobs or small businesses.”
On the economic front, initial jobless claims jumped back above the 450,000 level, suggesting continued weakness in the labor market ahead of Friday’s monthly jobs report. But a separate report from the Labor Department showed U.S. productivity bounced back in the third quarter, rising at a 1.9% annual rate, which exceeded economists’ expectations.
“We’re seeing a tale of two economies,” said Stephen Wood, chief market strategist at Russell Investments. “Corporate America continues to do well while housing and the labor market are still struggling. There was nothing particularly new in the jobless claims data. They’re not getting a lot worse, but they’re also not getting much better.”
In the aftermath of the Fed’s quantitative easing announcement, investors poured into a plethora of asset classes while the dollar continued to sink. Demand for U.S. Treasurys rose, pushing the yields for the two-year and five-year notes down to record lows. The yield on the benchmark 10-year note dropped to 2.49%.
Commodities also posted strong gains as the dollar weakened, continuing a trend seen over the last few months. Gold futures surged more than 3% to $1,379.40 an ounce, while crude oil jumped above $86 a barrel.
In contrast, the greenback slumped against its major rivals. The U.S. Dollar Index, which tracks the U.S. currency against a basket of six others, fell 0.9%. The euro gained strength, trading recently at $1.4207, up from $1.4121 late Wednesday in New York.
As expected, the Bank of England’s Monetary Policy Committee voted against an immediate expansion of its bond purchasing program Thursday and also left its key interest rate unchanged.
Investors analyzed a mixed bag of October same-store sales reports. Retailers last month set the stage for a fiercely competitive Christmas, with price wars, promotions and competitive positioning spurring most of the sales gains.
Macy’s, Saks and Nordstrom posted same-store sales figures that exceeded analysts’ expectations. But Aeropostale, Big Lots, Hot Topic registered disappointing results. Macy’s jumped 4.6%, while Big Lots slid 6.8%.
Among other stocks in focus, Potash Corp. of Saskatchewan fell 2.9% after the Canadian government rejected BHP Billiton’s $38.6 billion hostile bid for it, but gave the Anglo-Australian miner another 30 days to try to convince the government of its case.
Time Warner Cable’s third-quarter earnings rose 34%, beating analysts’ estimates, as revenue increased, but the company lost subscribers. Shares rose 5.2%.
DirecTV Group’s third-quarter earnings jumped 31% from a year ago as revenue rose and the company added more subscribers than a year earlier. Earnings were in line with analysts’ expectations, but shares fell 2.2%.
Source: WSJ