Stocks Leap on Central Bank Moves, Strong Data
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A move by global central banks to shore up credit markets, combined with a flurry of upbeat economic data, launched the Dow 400 points in the green, adding to big gains from earlier in the week.
As of 3:00 p.m. ET, the Dow Jones Industrial Average soared 372 points, or 3.2%, to 11,929, the S&P 500 jumped 38.8 points, or 3.3%, to 1,234 and the Nasdaq Composite leaped 80 points, or 3.2%, to 2,595.
Over the first two days of this week, the blue chips have added 324 points and are poised to extend those gains dramatically on Wednesday.
Every major sector was in the green, but energy, basic materials and financial firms saw the most buying. Additionally, all but five components of the broad S&P 500 were to the upside. More than 98% of volume on the New York Stock Exchange was in advancing shares, and volatility plunged 8%.
Out of the blue chips, Caterpillar (NYSE:CAT), the world's biggest heavy equipment maker, and JPMorgan Chase (NYSE:JPM) were the top performers. Wal-Mart (NYSE:WMT) and Home Depot (NYSE:HD) lagged behind with the shallowest gains.
U.S. Treasury yields pointed higher. The benchmark 10-year note yields 2.08% from 1.984%.
While news from Europe has ruled the day in many prior sessions, central bank actions are shaking up world markets. The Federal Reserve, European Central Bank and four other central banks unveiled a coordinated action to provide liquidity to "ease strains in financial markets."
"The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity," the Fed said in a statement.
Essentially, the Fed reducing the cost of providing dollar funding to the other banks in exchange for their respective currencies to "improve liquidity conditions in global money markets," according to the Fed's website. The swaps are temporary, generally ranging from overnight to three months, and there is a binding agreement to reverse the transaction at a later point, according to the website.
The other banks involved were The Bank of Canada, the Bank of England, the Bank of Japan, and the Swiss National Bank. The move comes on the heels of the Chinese central bank's cutting of the required reserve ratio on the largest lenders to ease credit conditions there. The world's second biggest economy grew at an annualized pace of 9.1% in the third quarter of this year -- the slowest rate since the second quarter of 2009, raising worries that it may be slowing down.
"The coordinated action by the global Central banks is welcome news," Fred Dickson, chief investment strategist at Davidson Companies, wrote in an e-mail. "However, we do not see this as the terminal big bang event that marks the end of the current eurozone financial crisis.
The euro spiked on the news of the central banks' actions, recently jumping 0.9% to $1.344. Energy markets were in the green as well. The benchmark crude oil contract traded in New York climbed 57 cents, or 0.57%, to $100.36 a barrel. Wholesale RBOB gasoline gained 3 cents, or 1.1%, to $2.57 a gallon.
Flurry of Upbeat Economic Data
A report by payroll firm ADP showed the private sector added 206,000 jobs in November, blowing past forecasts of a 130,000 increase. The September number was also revised higher to 116,000 from 91,000. The labor market has been slowly recovering since the unemployment rate hit 10.1% in October 2009. Small businesses have shown particularly robust job growth, the data have shown in recent months.
The number of planned layoffs fell 0.7% to 42,474 in November from the month prior, according to outplacement firm Challenger, Gray & Christmas. The number of planned job cuts were down 13% from last year, and were driven by the public sector.
The Institute for Supply Management's gauge of manufacturing in the Midwest jumped to 62.6 in November from 58.4 the month prior. This report comes ahead of the more closely watched ISM survey that covers the entire U.S.
The number of U.S. home buyers who signed contracts to buy previously occupied homes jumped 10.4% in October from the month prior to the highest level since November 2010, and far exceeding economists' expectations for a gain of 1.5%.
In metals, gold leaped $31.40, or 1.8%, to $1,750 a troy ounce.
European blue chips soared 4.3%, the English FTSE 100 leaped 3.2% to 5,505 and the German DAX spiked 5% to 6,089.
In Asia, the Japanese Nikkei 225 fell 0.51% to 8,435 and the Chinese Hang Seng dipped 1.5% to 17,989.