The Fed finally announced additional economic measures and
benchmarks soared to touch new multi-year highs on Thursday. The
announcement that the US Federal Reserve will buyback mortgage
securities worth $40 billion every month until the labor market
improves pushed the benchmarks instantly higher and the financial
sector enjoyed robust gains. Investor confidence was bolstered
following the news and led to above-average volumes.
The Dow Jones Industrial Average (DJI) soared 206.51 points or
1.6% to 13,539.86. The Standard & Poor 500 (S&P 500) jumped
1.6% to finish yesterday's trading session at 1,459.99. The
tech-laden Nasdaq Composite Index surged 1.3% to end significantly
higher at 3,155.83. The fear-gauge CBOE Volatility Index (VIX)
plunged 11.1% to settle at 14.05. The Street had its busiest day
since June 22 as consolidated volumes on the New York Stock
Exchange, Nasdaq and the American Stock Exchange amounted to
roughly 8.14 billion shares, higher than 2011's daily average of
7.84 billion shares. Advancers stormed past the declining stocks on
the NYSE; as for four stocks that rose, only one stock edged
lower.
The robust gains yesterday drove the benchmarks to fresh
multi-year highs. The Dow and S&P 500 both soared to levels
last witnessed in 2007, before the global recession battered the
benchmarks. The Nasdaq posted an even better performance, closing
at its highest level since November 2000.
The robust gains in the blue-chip index helped all 30 of its
components close in the green. Apart from financial stocks, the
gains were led by Alcoa, Inc. (NYSE:
AA
), Chevron Corporation (NYSE:
CVX
), The Home Depot, Inc. (NYSE:
HD
), The Coca-Cola Company (NYSE:
KO
), United Technologies Corp. (NYSE:
UTX
) and Exxon Mobil Corporation (NYSE:
XOM
) and they gained 3.0%, 1.8%, 2.2%, 2.1%, 2.2% and 1.9%,
respectively.
The day was dominated by the announcement that the Fed would
undertake a third round of quantitative easing (QE3). The central
bank also announced that it will maintain the funds rate near zero
at least till mid 2015. The announcement for QE3 came after months
of anticipation. Moreover, the central bank did not restrict the
purchase of mortgage debt within a specific time frame. The Fed
announced that it will buy back mortgage-backed securities worth
$40 billion every month till labor conditions improve.
Fed Chairman Ben Bernanke said: "The employment situation ...
remains a grave concern…While the economy appears to be on a path
of moderate recovery, it isn't growing fast enough to make
significant progress reducing the unemployment rate." It was clear
that the Fed is taking concerns about the labor market seriously
The central bank said that it may "employ its other policy tools"
if the "labor market does not improve substantially."
For past many trading sessions, volumes have been low as
investors' adopted a cautious stance and awaited action by the
central bank. However, announcement of the QE3 drove the volumes
beyond average. More importantly, the announcement brought cheer to
investors who were awaiting the economic stimulus for months.
It is widely believed that additional economic measures have the
potential to bolster the economic recovery. A market strategist
noted that the plan would improve confidence about the economy,
consumers will boost their spending and GDP will move up. The
central bank stated that QE3 "should put downward pressure on
longer-term interest rates, support mortgage markets, and help to
make broader financial conditions more accommodative".
On a day when the additional economic measure was announced and
was stated to continue till the jobs market improved, data
suggested that initial claims had increased. The U.S. Department of
Labor reported that initial claims jumped to a seasonally adjusted
382,000 in the week ending September 8, up 15,000 from prior week's
367,000. This was also higher than consensus estimates of 368,
000.
While none of the 10 industry groups in the S&P closed in
the red, the financial sector was one of the biggest gainers. The
Financial Select Sector SPDR (ETF) jumped 2.7% and stocks including
American Express Company (NYSE:
AXP
), Bank of America Corp (NYSE:
BAC
), JPMorgan Chase & Co. (NYSE:
JPM
), Citigroup Inc. (NYSE:
C
) and Morgan Stanley (NYSE:
MS
) surged 3.1%, 4.8%, 3.7%, 4.2% and 2.8%, respectively.
ALCOA INC (AA): Free Stock Analysis Report
AMER EXPRESS CO (AXP): Free Stock Analysis
Report
BANK OF AMER CP (BAC): Free Stock Analysis
Report
CITIGROUP INC (C): Free Stock Analysis Report
CHEVRON CORP (CVX): Free Stock Analysis Report
HOME DEPOT (HD): Free Stock Analysis Report
JPMORGAN CHASE (JPM): Free Stock Analysis
Report
COCA COLA CO (KO): Free Stock Analysis Report
MORGAN STANLEY (MS): Free Stock Analysis Report
UTD TECHS CORP (UTX): Free Stock Analysis
Report
EXXON MOBIL CRP (XOM): Free Stock Analysis
Report
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