Pledge by the European Central Bank President to "do whatever it
takes" to defend the euro sparked off a sharp rally in the US
markets. Investors have been weighed down by fresh European debt
concerns recently while Spain's borrowing costs have crossed the
'unsustainable level' of 7%. Mario Draghi's comments thus boosted
sentiment and the Dow enjoyed its fifth 200-plus points gain for
the year.
The Dow Jones Industrial Average (DJI) enjoyed triple-digit
gains of 211.88 points or 1.7% to close at 12,887.93. The Standard
& Poor 500 (S&P 500) jumped 1.75 and finished yesterday's
trading session at 1,360.02. The tech-laden Nasdaq Composite Index
surged 1.4% and ended just over 39 points higher at 2,893.25. The
fear-gauge CBOE Volatility Index (VIX) slumped 9.4% to settle at
17.53. It was a busy day for the Street as consolidated volumes on
the New York Stock Exchange, the Nasdaq and American Stock Exchange
were 7.44 billion shares, higher than the year-to-date daily
average of 6.74 billion shares.
The Dow had its fifth 200 plus points gain for 2012 yesterday,
which was also its fourth-largest increase for the year so far.
This increase has come right on the heels of the 204-point gain on
July 13th. Yesterday's 211.88 point gain marked this month's second
jump in excess of 200 points. Last month too, the Dow had jumped
over 200 points twice and Dow had to wait only until March 13th to
register its second gain in excess of 200 points for the year.
Consequently, all of the 30 Dow components but one managed to
finish in the green. Cisco Systems, Inc. (NASDAQ:
CSCO
) was the only Dow component that settled in the red zone
yesterday, dropping 0.3%. Among the biggest Dow gainers, American
Express Company (NYSE:
AXP
), The Walt Disney Company (NYSE:
DIS
), The Home Depot, Inc. (NYSE:
HD
), The Coca-Cola Company (NYSE:
KO
), 3M Co (NYSE:
MMM
) and AT&T Inc. (NYSE:
T
) jumped 3.1%, 2.9%, 3.6%, 2.4%, 2.1% and 2.8%, respectively.
While these gains enabled the Dow to be close in the green for
the week, the S&P 500 and Nasdaq finally managed a positive
finish after fourth-consecutive days of decline. These developments
were propelled largely by comments from ECB President Mario Draghi
who vowed to safeguard the euro. Draghi said: "Within our mandate,
the ECB is ready to do whatever it takes to preserve the euro". He
went on to state that: "To the extent that the size of these
sovereign premia hamper the functioning of the monetary policy
transmission channel, they come within our mandate," and added "We
have to cope with the financial fragmentation, address these
issues."
European debt has been a severe headwind for the markets over
the past several months. Investors have witnessed Ireland, Greece,
Portugal, Spain, Italy succumbing to the debt pressures. The
overall economic growth rate in the euro-zone has also looked
feeble. According to data released in May there has been 'zero GDP
growth' in the Eurozone. If Germany's GDP had not grown by 0.5%,
the Eurozone as a whole would have sunk into a recession. While the
euro-zone registered 'zero GDP growth', Italy, Spain and Portugal
contracted 0.8%, 0.3% and 0.1%, respectively.
In such a scenario, investors have been greeted by some positive
developments in patches, such as the events of yesterday. Borrowing
costs for Spain had been trending up significantly and even crossed
the 7% mark, considered to be an 'unsustainable level'. Mario
Draghi's comments helped ease the spike in borrowing costs, with
Spain's 10-year bond yield dropping to 6.94%, down 40 basis
points.
Separately, economic data was also on the positive side after
data from U.S. Department of Labor noted a decline in initial
claims. According to the report: "In the week ending July 21, the
advance figure for seasonally adjusted initial claims was 353,000,
a decrease of 35,000 from the previous week's revised figure of
388,000". This compares favorably with consensus estimates that
projected initial claims to would clock in at 380, 000.
AMER EXPRESS CO (AXP): Free Stock Analysis
Report
CISCO SYSTEMS (CSCO): Free Stock Analysis
Report
DISNEY WALT (DIS): Free Stock Analysis Report
HOME DEPOT (HD): Free Stock Analysis Report
COCA COLA CO (KO): Free Stock Analysis Report
3M CO (MMM): Free Stock Analysis Report
AT&T INC (T): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment
Research