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It was a day of massive gains for the markets which received a boost from soaring bank stocks and encouraging economic data. Additionally, comments by the central bank about an improving economy guided the markets higher. The Dow jumped to its highest level since the end of 2007. Fellow benchmarks also shared the laurels and the Nasdaq settled above 3, 000 for the first time since the fag end of the Dot com bubble.
The Dow Jones Industrial Average (DJI) soared by 217.97 points or 1.7% to settle at 13,177.68. The Standard & Poor 500 (S&P 500) jumped 1.8% and finished yesterday’s trading session at 1,395.96. The tech-laden Nasdaq Composite Index surged over 56 points or 1.9% to finally close at 3,039.88. The fear-gauge CBOE Volatility Index (VIX) slumped 5.4% and was down to 14.80. On a year-to-date basis the fear-gauge index is now down 36.8% and over 5 trading days it is down 29.1%. Consolidated volumes on the New York Stock Exchange, the American Stock Exchange and Nasdaq were 7.51 billion shares, lower than last year's daily average of 7.84 billion. Advancers clearly outpaced the decliners on the NYSE, as for 80% stocks that gained only 19% traded lower. The remaining stocks were left unchanged.
While the markets enjoyed their best performance so far in 2012, the Dow finished above 13, 000 for the second time this year. On February 28 the Dow had settled above 13, 000, a feat that it achieved for the first time since May 19, 2008. However, the Nasdaq had to wait for a significantly longer period to settle above 3, 000. For the past two weeks, the tech-laden index had been trading near levels last seen at the fag-end of the Dot com bubble. Finally, the Nasdaq settled above 3, 000, a feat it has achieved for the first time since the December 2000. Meanwhile, experts are hopeful that since the S&P 500 crossed the 1, 390 mark yesterday, then it is most likely en route to cross 1, 400. S&P 500’s intra-day high of 1,396.13 was also its highest since June 2008.
Yesterday, the Federal Reserve came out with the results of the stress test it conducted on 19 US large banks. We will come to that a little later, but before that we need to highlight the developments at JP Morgan Chase & Co. (NYSE:JPM). Well ahead of the stress test results, the financial bellwether hiked its dividend by a nickel. While the quarter’s dividend stands at 30 cents, the company also announced a share buyback plan worth roughly $15 billion. The news release came out at 3:04 P.M. and there was no turning back for the stock thereafter. JP Morgan jumped 7.0% and settled at $43.39. JP Morgan led the way for the fellow banks to raise their dividend and announce buyback plans. Cashing in on the opportunity, other bank stocks like Bank of America Corporation (NYSE:BAC), The Goldman Sachs Group, Inc. (NYSE:GS), Morgan Stanley (NYSE:MS), U.S. Bancorp (NYSE:USB) and Wells Fargo & Company (NYSE:WFC) gained 6.3%, 6.5%, 4.0%, 4.5% and 5.8%, respectively. USB and Wells Fargo are also set to hike their dividends.
The central bank was slated to come out with the results of the stress test after the closing bell on Thursday. However, with JP Morgan’s sudden announcement of a dividend hike and a share buyback program, the Fed released the results on Tuesday itself. Investors had been keenly awaiting the results to ascertain the resistance quality of the banking majors amidst an economic shock. Thankfully, the central bank announced that 15 of the 19 banks had passed the stress test. Unfortunately, Citigroup, Inc. (NYSE:C) was among the four companies along with SunTrust Banks, Inc. (NYSE:STI), Ally Financial and MetLife, Inc. (NYSE:MET) that failed to pass the test.
Separately, the Federal Reserve was upbeat about the economy, which it said was “expanding moderately”. The policy statement of the central bank kept the bullish mood alive, but it announced no new monetary stimulus plan. A few experts opined that the upbeat mood about the economy justified the Fed’s decision to withhold any plan to deliberately stimulate the economy.
Markets were also buoyed by robust retail data from the U.S. Department of Commerce. According to the report:”…advance estimates of U.S. retail and food services sales for February, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $407.8 billion, an increase of 1.1 percent (±0.5%) from the previous month and 6.5 percent (±0.7%) above February 2011. Total sales for the December 2011 through February 2012 period were up 6.4 percent (±0.5%) from the same period a year ago”. Consequently, Retail SPDR S&P ETF (XRT) closed 1.3% higher and retail stocks including Starbucks Corporation (NASDAQ:SBUX), Peet's Coffee & Tea, Inc. (NASDAQ:PEET), Sara Lee Corp. (NYSE:SLE) and Tyson Foods, Inc. (NYSE:TSN) gained 2.4%, 1.7%, 1.3% and 1.5%, respectively.