Investors grew hopeful once again about fresh economic stimulus after Chicago Federal Reserve Bank President Charles Evans spoke in support of such a move, helping markets to end significantly higher. Yesterday’s strong rally washed out all of Monday’s losses with financial and material stocks gaining the most. Investors also focused on domestic developments and ignored Fitch Ratings downgrade of 18 Spanish banks.
The Dow Jones Industrial Average (DJI) jumped a robust 1.3% or 162.57 points to close at 12,573.80. The Standard & Poor 500 (S&P 500) gained 1.2% and finished yesterday’s trading session at 1,324.18. The tech-laden Nasdaq Composite Index surged 1.2%, ending 33.34 points higher at 2,843.07. The fear-gauge CBOE Volatility Index (VIX) declined 6.2% and settled at 22.09. Total volumes on the New York Stock Exchange were 3.45 volume shares, and the advancers far outnumbered the declining stocks. On the NYSE, for 76% stocks that jumped, 21% stocks closed lower.
The robust gains washed out all of the losses the markets endured on Monday, a day which was once again dominated by European financial worries. On Monday, investors were apprehensive about how far the bailout would go to solve the lingering financial woes of the region. Market experts opined that fundamental concerns were still not being addressed. Thus, widespread concerns dented the benchmarks on Monday. However, while these worries spilled over on to Tuesday, they were restricted only to the European frontier and markets there had a gloomy day.
Also, the European markets had to come to terms with Fitch Ratings downgrading 18 Spanish banks. Bankia, one of the largest lenders of the nation, was also one among the 18 banks to be downgraded and its long-term issuer default rating dropped from BBB+ to BBB. The downgrade, according to Fitch, was due to “concerns about the potential for the loan portfolios of certain banks to deteriorate further”. Rising fears in the nation also pushed up Spain’s borrowing cost to a record high. The 10-year Spanish bond yield touched a high of 6.83% before moving down marginally. The bond-yields were at its highest level since Spain entered the euro.
However, investors on the home front had reasons for cheer and they completely shrugged off cross-Atlantic concerns. Chicago Federal Reserve Bank President Charles Evans told a media house that he supports actions to accelerate jobs growth. Evans once again spurred hopes of the central bank proving fresh economic stimulus after he said: "More asset purchases would be useful. More mortgage-backed securities purchases would be good". The Federal Open Market Committee policy makers are set to meet next week and Evans’ comments ahead of that was what investors chose to focus on. He made the case for such action stronger by saying: "It's currently going to take longer than anybody would like. If we had more aggressive monetary policy, it would happen sooner". He is one among the few so far to be vocal about renewed stimulus, hopes of which have consistently been dashed by the central bank so far.
With hopes rising once again about fresh economic measures, benchmarks rallied strongly and the financial and materials sectors emerged as strong winners. The Financial Select Sector SPDR (XLF) jumped 1.6% and the Materials Select Sector SPDR (XLB) gained 1.9%. Looking first at the financial stocks, American Express Company (NYSE:AXP), Bank of America Corp (NYSE:BAC), Citigroup Inc. (NYSE:C), JPMorgan Chase & Co. (NYSE:JPM), Morgan Stanley (NYSE:MS) and U.S. Bancorp (NYSE:USB) gained 2.5%, 2.9%, 4.3%, 2.9%, 4.2% and 2.5%, respectively.
As for the material stocks, E I Du Pont De Nemours And Co (NYSE:DD), PPG Industries, Inc. (NYSE:PPG), Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX), Southern Copper Corp (NYSE:SCCO) and HudBay Minerals Inc (NYSE:HBM) jumped 2.5%, 2.2%, 1.9%, 1.0% and 3.4%, respectively.