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Recouping most of the previous day’s tumble, the blue chips soared almost 200 points on Wednesday as Wall Street cheered further progress on Europe’s bailout plans and shrugged off leaders’ inability to reach a comprehensive agreement on key sticking points.
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In addition to developments out of a crucial euro-zone summit, U.S. equities received a bounce from further upbeat earnings reports from key companies, including defense and aerospace giant Boeing (NYSE:BA). Including Wednesday's triple-digit rally, Wall Street has closed higher four of the past five trading sessions.
“I think it’s just an overall resilient, bullish sentiment that’s taken hold of the market, which is really continuing to have an optimistic tone,” said Michael James, managing director of equity trading at Wedbush Securities.
Most of the focus was on Europe's efforts to solve its sovereign debt debacle. A number of positive developments emerged, including a report from The Wall Street Journal saying French President Nicolas Sarkozy planned to reach out to China’s President Hu Jintao about contributing to the euro-zone bailout fund, the European Financial Stability Facility. While EU nations are struggling to commit enough cash, China’s coffers are far deeper.
Further, Reuters reported euro-zone nations at the summit signed off on plans to leverage the EFSF several fold and Germany's parliament has already agreed to use leverage. Leveraging the EFSF is crucial to increasing its firepower and making it robust enough to tackle the crisis in larger euro-zone nations such as Italy, should the need arise. Utilizing leverage has been a major point of contention among many governments.
Additionally, a draft agreement from the summit said the EFSF can act as a risk insurance and special purpose vehicle, further ramping up its usefulness in providing rescues. Any plan will need to be approved by the parliaments of all 17 countries in the bloc, where varying political tensions have come into play. Germany -- Europe's economic powerhouse -- has been pushing to reduce its involvement in sovereign bailouts, while at the same time emphasizing the importance of the euro.
However, the summit failed to produce a deal on the size of a haircut on Greek bonds that are held by private investors, including embattled French and German banks. Traders were impressed with the markets' resiliency, which was on display by not selling off due to the EU failing to reach a comprehensive deal on a number of sticking points.
“If this would have happened a month ago, there would have been a little more focus on the negatives than the positives,” said James. “Right now there’s a bullish backdrop to the market. That could change on a dime.”
European markets ended modestly lower on the day, but closed before the summit concluded. The euro dipped 0.06% to $1.3899 in particularly choppy trading. The dollar rose 0.38% against a basket of six world currencies.
Earnings season continued to roll on in mostly positive fashion as Boeing unveiled third-quarter profits of $1.1 billion, more than the $837 million it earned in the same period the year prior, and higher than Wall Street forecast. Shares of the aircraft maker flew 4.5% higher, leading the Dow by a wide margin. Ford (NYSE:F) posted third-quarter profits that were less than it earned in the same period last year, but higher than analysts anticipated.
Financial and energy shares outperformed the broader markets, while consumer-driven issues like Nordstrom (NYSE:JWN) struggled a bit.
Durable Goods, Home Sales Data Top Expectations
On the economic front, orders for long-lasting goods fell by 0.8% in September, a shallower loss than the 0.9% economists forecast. Excluding the transportation component, orders were actually up 1.7%, much bigger than the 0.4% rise that was anticipated.
The report is important for the manufacturing sector, and could impact a wide swath of companies from Caterpillar (NYSE:CAT) to Apple (NASDAQ:AAPL).
New sales of single-family hopes jumped 5.7% to an annualized rate of 313,000 units in September. Economists expected a smaller increase to 300,000. While supply fell to the lowest level since last April, median home prices are off 10.4% from September of last year.
Demand for housing has remained anemic as a result of stubbornly-tight lending conditions, beaten down consumer confidence, and a glut of available supply on the market.
Energy markets closed lower on a bearish inventory report. The Energy Department reported crude oil stockpiles increased nearly four times more than expected last week, while gasoline draws were slightly shallower than expected. Higher supplies can point to lower overall demand for energy, putting pressure on prices.
Light, sweet crude fell $2.97, or 3.2%, to $90.20 a barrel. Wholesale RBOB gasoline fell 5 cents, or 1.8%, to $2.65 a gallon.
Gold jumped for its forth-straight session. The precious metal climbed $23.10, or 1.4%, to $1,724 a troy ounce. The yield on U.S. government debt moved higher. The benchmark 10-year Treasury note yields 2.160% from 2.116%.
Amazon.com (NASDAQ:AMZN) revealed quarterly results that were well short of analysts' expectations on the top and bottom line after the closing bell on Tuesday. Shares of the largest online retailer closed off nearly 13% on the report.
MF Global Holdings (NYSE:MF) has hired an investment bank Evercore Partners (NYSE:EVR) to look into a possible sale, merger, or other strategic options as the company looks to stem its plunging shares, according to the Journal.
Nokia (NYSE:NOK) unveiled phones powered by Microsoft's (NASDAQ:MSFT) mobile operating system as the Finland-based company looks to compete with other smartphones powered by Google (NASDAQ:GOOG) and Apple (NASDAQ:AAPL) software.
European blue chips fell 0.38%, the English FTSE 100 rose 0.5% to 5,553 and the German DAX slipped 0.51% to 6,016.
In Asia, the Japanese Nikkei 225 fell 0.16% to 8,748 and the Chinese Hang Seng climbed 0.52% to 19,067.