Benchmarks soared to new multi-year highs on Thursday following
news that the ECB had agreed on a bond purchase plan that will
strive to combat the region's intensifying debt crisis. Separately,
jobs data on the domestic front was positive, helping markets widen
their gains. Eventually, the Dow was at its best level since 2007,
the S&P 500 hit the highest mark since 2008, and the Nasdaq
soared to its biggest level since 2000.
The Dow Jones Industrial Average (DJI) soared 244.52 points or
1.9% to end at 13,292.00. The Standard & Poor 500 (S&P 500)
surged almost 2.1% to finish yesterday's strong rally at 1,432.12.
The tech-laden Nasdaq Composite Index surged 2.2% to close at
3,135.81. Amidst such robust gains, the 12.1% slump in the
fear-gauge CBOE Volatility Index (VIX), which settled at 15.60,
further reflected investors' confidence. Total volume on the New
York Stock Exchange was 3.96 billion shares. Advancers easily
outnumbered declining stocks on the NYSE; as for 77% stocks that
gained, only 20% stocks closed lower.
Benchmarks last witnessed such high levels long ago when the
recession had just begun around four years ago. In fact, the Nasdaq
jumped to levels it last witnessed in 2000, during the Dotcom
bubble. These new multi-year highs were primarily due to what
European Central Bank (ECB) President Mario Draghi had to
Following the ECB meeting, Mario Draghi said the ECB has agreed
to buy back government bonds of embattled Euro-zone nations. Draghi
said: "The Governing Council decided on the modalities for
undertaking Outright Monetary Transactions (OMT) in secondary
markets for sovereign bonds in the euro area". The bond purchase
would help nations such as Italy and Spain to control their
burgeoning borrowing costs.
The central bank is aiming to restore the 'singleness' of its
monetary policy. Speaking at a press conference in Frankfurt,
Draghi stated that "OMTs will enable us to address severe
distortions in government bond markets, which originate from, in
particular, unfounded fears on the part of investors of the
reversibility of the euro". The onus lies on the countries'
governments now, as they will have to seek help from Europe's
rescue funds. Draghi said: ""Governments must stand ready to
activate the EFSF/ESM in the bond market when exceptional
financial-market circumstances and risks to financial stability
exist - with strict and effective conditionality".
While the new bond purchase plan sparked off a strong rally,
positive domestic jobs data also played a key role in ensuring that
benchmarks achieved new multi-year highs. While the U.S. Department
of Labor announced a bigger-than-expected drop in initial claims;
Automatic Data Processing, Inc.'s (NASDAQ:
) National Employment Report revealed that US companies added jobs
at the fastest pace in five months in August.
According to the Labor Department's report, the advance figure
for seasonally adjusted initial claims was at 365,000 during the
week ending September 1, down 12,000 from prior week. Consensus
estimates had projected initial claims to come in at 372, 000.
While initial claims data lifted sentiment, the ADP National
Employment Report revealed that U.S. nonfarm private business
sector employment jumped 201,000 from July to August. According to
the report: "Employment in the private, service-providing sector
expanded 185,000 in August, up from 156,000 in July. Employment in
the private, goods-producing sector added 16,000 jobs in August.
Manufacturing employment rose 3,000, following an increase of 6,000
Coming to the individual sectors, the financial sector was a
major gainer and the Financial Select Sector SPDR (XLF) soared
2.4%. Among the stocks, Goldman Sachs Group, Inc. (NYSE:
), JPMorgan Chase & Co. (NYSE:
), Citigroup Inc. (NYSE:
), Wells Fargo & Company (NYSE:
), U.S. Bancorp (NYSE:
), Morgan Stanley (NYSE:
) and Charles Schwab Corp (NYSE:
) jumped 3.3%, 4.3%, 4.5%, 3.2%, 2.6%, 3.6% and 4.7%,
AUTOMATIC DATA (ADP): Free Stock Analysis
CITIGROUP INC (C): Free Stock Analysis Report
GOLDMAN SACHS (GS): Free Stock Analysis Report
JPMORGAN CHASE (JPM): Free Stock Analysis
MORGAN STANLEY (MS): Free Stock Analysis Report
SCHWAB(CHAS) (SCHW): Free Stock Analysis Report
US BANCORP (USB): Free Stock Analysis Report
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