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Wall Street celebrated Columbus Day with a 330-point buying binge on the Dow as traders around the world breathed a sigh of relief that European leaders pledged to bolster their banks and the markets look ahead to the start of earnings season.
The Dow Jones Industrial Average soared 330.06 points, or 2.97%, to 11433.18, the Standard & Poor's 500 jumped 39.43 points, or 3.41%, to 1194.89 and the Nasdaq Composite leaped 86.70 points, or 3.50%, to 2566.05. The FOX 50 gained 28.49 points, or 3.38%, to 872.36.
While bond markets in the U.S. were closed for the holiday, the bulls on Wall Street did anything but stay home, sending the blue chips to their biggest one-day point gain since August 11. Rallying for the fourth time in five sessions, the benchmark index has surged about 775 points over the past week amid signs Europe is finally racing to get its debt debacle under control before it sends the U.S. to a double-dip recession.
“I think market sentiment has shifted to a modestly positive tone. Current pricing is, frankly, relatively cheap relative to what earnings should be,” said Peter Kenny, managing director at Knight Capital. Kenny also said, “The tone out of Europe has become a lot more constructive over the last week or so” thanks to “pretty aggressive, very proactive policy initiatives spearheaded by both France and Germany.”
Over the weekend German Chancellor Angela Merkel and French President Nicolas Sarkozy promised to take action before the end of October to fix the continent's debt mess and shore up their banks. The leaders of the two largest euro-zone countries said they are close to a deal to recapitalize embattled European lenders. However, Merkel and Sarkozy stopped short of laying out specifics of a plan.
Because of Europe's ties to the global financial and economic systems, the deepening sovereign debt crisis has hurt stocks and growth around the world in recent months.
In another sign Europe is attempting to get the crisis under control, France and Belgium quickly teamed up to nationalize and break up municipal lender Dexia, which had been teetering on the verge of collapse due to its enormous exposure to Greek bonds. Dexia, which appears to be the first banking victim of the current crisis, quickly reached a deal to receive $121 billion in state guarantees and sell its Belgium unit to the government for $5.4 billion.
“They weren’t playing games with that. It wasn’t dragged on, for a change,” said Kenny.
Earnings Season Looms
Tech stocks also rallied in the U.S. as Apple (NASDAQ:AAPL) said it sold a record 1 million iPhone 4S devices in a single day and IBM (NYSE:IBM) hit a new record high.
All 30 blue-chip stocks landed in the green, led by banking giants Bank of America (NYSE:BAC) and JPMorgan Chase (NYSE:JPM). Economically-sensitive stocks like Caterpillar (NYSE:CAT) and General Electric (NYSE:GE) also rallied, while safer plays such as McDonald’s (NYSE:MCD) and Procter & Gamble (NYSE:PG) saw smaller percentage gains.
Commodities weren't left out of the Columbus Day rally as crude oil soared $2.43, or 2.93%, to $85.41 and gold gained $35.00 a troy ounce, or 2.14%, to $1,674.40.
Meanwhile, Wall Street is gearing up for the start of another earnings season, which is set to kick off after Tuesday's closing bell when aluminum maker Alcoa (NYSE:AA) releases its quarterly results. Whether or not companies are able to meet and even exceed expectations for earnings is likely to be a key driver for stocks for the next several weeks. Financial stocks are expected to disclose steep declines in quarterly profits.
It’s worth noting Monday’s big rally was backed up with little volume due to the holiday. Typically investors would like to see more conviction behind big moves. There was remarkably little volatility during most of the session as the Dow moved in a tight trading range of less than 50 points until the final burst of buying.
Last week U.S. stocks stopped their slump, with the Dow rallying 1.7% and the Nasdaq Composite leaping almost 3% amid hopes policymakers in Europe are finally taking the crisis seriously. However, stocks closed in the red on Friday as enthusiasm for a better-than-expected jobs report was drowned out by a credit ratings downgrade for both Spain and Italy.
“If the European debt crisis were to suddenly disappear, stocks would appear very cheap (some would say dirt cheap), but of course the uncertainty over the debt crisis remains the critical wildcard,” Bob Doll, chief equity strategist at BlackRock, wrote in a note.
Netflix (NASDAQ:NFLX) abandoned its unpopular plan to separate its DVD-by-mail service and rename it Qwikster, caving to customer dissatisfaction. The company's stock initially leaped on the announcement, but then retreated on a downgrade to "neutral" from "outperform" by Wedbush.
Sprint Nextel’s (NYSE:S) stock plunged another 8% to 2009 levels after a slew of analysts downgraded the No. 3 wireless company. Sprint’s stock has been in free fall on concerns about the need to raise more cash due to costly plans to roll out its own 4G network and sell the iPhone.
Yahoo! (NASDAQ:YHOO) jumped 2% as Reuters reported co-founder Jerry Yang is interested in teaming up with private-equity firms to take the struggling Internet giant private. Meanwhile, Bain Capital has emerged as another potential suitor for Yahoo! and Chinese Internet company Alibaba has reportedly held talks with Singapore’s Temasek about providing financing to buy the 40% investment Yahoo! holds in itself.
Superior Energy (NYSE:SPN) agreed to be acquire energy services company Complete Production Services (NYSE:CPX) for $6.2 billion. The $32.90-a-share deal represented a 62% premium on Complete’s close on Friday.
London's FTSE 100 rose 1.80% to 5399.00, Germany's DAX surged 3.02% to 5847.29 and France's CAC 40 rallied 2.13% to 3161.47.
In Asia, the Japanese Nikkei 225 was closed for a holiday, but Hong Kong's Hang Seng inched up 0.02% to 17711.10.