US Stocks Rally On Economy, Earnings; Spain Lifts Europe

[Chart courtesy of MarketWatch.com]

US stocks surged Wednesday with the Dow Industrials posting its biggest daily gain in more than a month following data showing a bunch of strong quarterly earnings report and a solid recovery in industrial activity in September.

Risk appetite got a boost after a Federal Reserve report showed industrial output climbed 0.4 percent in September, beating a 0.2 percent gain projected by economists. Manufacturing, which comprises 75 percent of the total, rose 0.2 percent during the period. Output at factories, mines and utilities had slumped 1.2 percent in August. A separate report, however, showed cost of living went up 0.6 percent in September, rising for the second successive month. Economists had projected a CPI gain of 0.5 percent for the month.

More good news followed from Europe after media reports suggested Germany may roll back its resistance to a full-blown Spanish bailout request. Finance Minister Wolfgang Schaeuble had cautioned Madrid against seeking a sovereign bailout in addition to its bank-bailout in September. According to reports, two lawmakers from the ruling Christian Democratic Party-led coalition indicated Germany is open to Spain requesting a precautionary credit line from the region’s permanent emergency fund, the European Stability Mechanism.

The Dow Jones Industrial Average (DJIA) soared 128 points, the largest single-day gain since September 13 when the Federal Reserve announced its third round of monetary stimulus, popularly known as quantitative easing.

The S&P 500 Index (SPX) rose 15 points with energy and basic materials gaining the most among its 10 business groups.

Yield on the benchmark 10-year note rose the most in more than a week as demand for safe havens eased. The benchmark-10-year Treasury yield climbed five basis points to 1.72 percent while yield on the 30-year Treasury bonds jumped seven basis points to 2.92 percent.

Meanwhile, Spain lifted Europe Tuesday after reports suggested Madrid has moved closer to request a formal bailout from its neighbors and may get Berlin’s support.

The pan-European Stoxx 600 index surged 1.3 percent, its biggest one-day jump since October 1.

Risk sensitive sectors such as banks and miners jumped with Spanish lenders taking the lead. BBVA SA vaulted 6 percent while Lloyds Banking Group of UK surged 6.1 percent.

The IBEX 35 index in Madrid rallied 3.4 percent, its biggest jump in more than a month. Banco Santander SA climed 4.3 percent while Bankinter SA leapt 7.4 percent.

Banks also rallied in Frankfurt with index components Deutsche Bank AG and Commerzbank AG rising 5.1 percent and 4.1 percent, respectively. The DAX 30 index finished 1.6 percent higher while the ZEW economic sentiment index rose to minus 11.5 in October from minus 18.2 in September.

French banks also joined the fun with shares of Credit Agricole, BNP Paribas and Societe Generale rising between 5.3 percent and 3.9 percent.

In the ETF space, Europe-linked funds outperformed the market with the iShares MSCI Spain Index Fund (EWP) soaring 4.08 percent for the day following reports Madrid has moved a step closer to requesting a formal bailout. The Global X FTSE Nordic 30 ETF (GXF) also rallied, adding 2.28 percent on the day while the Vanguard European ETF (VGK) rose 1.82 percent.

Disclosure: No holdings

 

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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