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Benchmarks recorded their biggest gains this year following news that leaders were considering ways to boost the flagging economies both here and across the Atlantic. The Atlanta Federal Reserve President spoke of further monetary easing if the U.S. economy continues to suffer and the European economic scenario turns worse. Further, there was more encouragement from the other side of the pool as European officials were reported to be considering plans to rescue Spanish Banks. Investor sentiment has been dampened by lingering economic woes for quite some time now. Thus, the slightest positive hint regarding the economic scenario helped markets to soar and touch new highs for the year.
The Dow Jones Industrial Average (DJI) soared 286.84 points or 2.4% to close at 12,414.79. The Standard & Poor 500 (S&P 500) jumped 2.3% and finished yesterday’s session almost 30 points higher at 1,315.13. The tech-laden Nasdaq Composite Index surged 2.4% and was up to 2,844.72. The Street was decently busy on a day of such robust gains as consolidated volumes on the New York Stock Exchange, the Nasdaq and the American Stock Exchange were roughly 7.36 billion shares, higher than the year-to-date daily average of 6.85 billion shares. Advancing stocks on the NYSE stormed past the decliners; as for 13 stocks that gained, a couple of stocks ended in the red zone.
Investors finally witnessed robust gains after consistent sessions of declines and minimal increases. The Dow’s 286-point jump was the best one-day performance since December 20 last year. Moreover, the blue-chip index is back in positive territory for the year and is now trading 1.6% higher for 2012. The S&P 500 too shared the laurels as it recorded its best one-day gains for the year so far. All of the 10 industry groups of the S&P 500 finished in the green and market onlookers opined that after the severe fall the time was ‘ripe for a rebound’.
Last Friday, investor sentiment was dampened by dismal domestic jobs data, which eventually led to one of the year’s largest drops for the indices. Taking a cue from the murky jobs market, Atlanta Fed President Dennis Lockhart noted that the labor markets exposed the “halting and tenuous" economic recovery. Also, GDP numbers in the U.S. have showed a slower pace of growth and other economic readings have also been mostly disappointing off late. In such a scenario, Dennis Lockhart added: "Should it become clear that something resembling my baseline scenario of continued, though modest, growth is no longer realistic, further monetary actions to support the recovery will certainly need to be considered".
San Francisco Fed President John Williams lent further support to this argument, emphasizing the impact of the European crisis. He said: “It's crucial that we maintain our current highly stimulatory monetary policy stance…We must also stand ready to do even more if needed to best achieve our statutory goals of maximum employment and price stability". The comments from these two heads came ahead of Fed Chairman Ben Bernanke’s testimony before Congress on Thursday.
Meanwhile, European Union officials and Germany are examining ways to rescue the beleaguered Spanish banks according to sources. These two bodies were reportedly considering lending money from the European bailout fund to rescue these banks. Amidst hopes of the wobbly economy getting some stimulus, the European Central Bank left the interest rate unchanged. Mario Draghi, the ECB President, said the European debt crisis is “far away” from the tumultuous scenario of the Lehman Brothers’ collapse. However, he said that if required, the ECB is "ready to act" and commented: "I don't think it would be right for monetary policy to fill other institutions' lack of action”.
With such robust gains and hopes of the economy getting a much needed boost, the financial sector was a big gainer yesterday and the Financial Select Sector (XLF) jumped 3.0%. Financial bellwethers including American Express Company (NYSE:AXP), Bank of America Corp (NYSE:BAC), Citigroup Inc. (NYSE:C), JPMorgan Chase & Co. (NYSE:JPM) and Morgan Stanley (NYSE:MS) soared 2.6%, 7.6%, 5.4%, 3.4% and 8.4%, respectively.