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Stocks See Further Upside As Traders Digest Fed Announcement


After moving sharply higher over the course of the previous session, stocks saw further upside during trading on Friday. The markets continued to benefit from a positive reaction to the Federal Reserve's announcement of additional quantitative easing.

The major averages ended the day firmly in positive territory, although off their best levels of the session. The Dow rose 53.51 points or 0.4 percent to 13,593.37, the Nasdaq jumped 28.12 points or 0.9 percent to 3,183.95 and the S&P 500 climbed 5.78 points or 0.4 percent to 1,465.77.

With the gains, the major averages moved sharply higher for the week, reaching new multi-year highs. The Dow rose by 2.2 percent, while the Nasdaq and the S&P 500 advanced by 1.5 percent and 1.9 percent, respectively.

The continued strength on Wall Street came following yesterday's announcement from the Federal Reserve of its decision to provide further economic stimulus by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month.

Looking ahead, the Fed said it would continue its purchases of mortgage-backed securities until the outlook for the labor market improves substantially.

The central bank also left interest rates at near-zero levels and said exceptionally low rates are likely to be warranted at least through mid-2015.

Traders were also presented with a slew of U.S. economic data, including a report from the Commerce Department showing slightly stronger than expected retail sales growth amid a jump in gas prices.

The report showed that retail sales rose by 0.9 percent in August following a downwardly revised 0.6 percent increase in July. Economists had expected the sales growth to match the 0.8 percent increase originally reported for the previous month.

However, excluding sales in both the automotive and gasoline sectors, August retail sales were up a mere 0.1 percent, notably below the 0.4 percent growth predicted by most economists.

A separate report from Thomson Reuters and the University of Michigan showed that consumer sentiment has unexpectedly seen a substantial improvement in the month of September.

The consumer sentiment index jumped to 79.2 in September from the final August reading of 74.3. The increase came as a surprise to economists, who had expected the index to edge down to a reading of 73.5.

Meanwhile, the Federal Reserve released a report showing a much steeper than expected drop in industrial production in the month of August, with Hurricane Isaac restraining output in the Gulf Coast region

The Fed said industrial production tumbled by 1.2 percent in August following a downwardly revised 0.5 percent increase in July. Economists had expected production to edge down by 0.1 percent.

In overseas trading, stock markets across the Asia-Pacific region saw considerable strength on Friday following the overnight rally on Wall Street. Japan's Nikkei 225 Index surged up by 1.8 percent, while Hong Kong's Hang Seng Index jumped by 2.9 percent.

The major European markets also moved sharply higher on the day. While the French CAC 40 Index soared 2.3 percent, the U.K.'s FTSE 100 Index and the German DAX Index jumped 1.6 percent and 1.4 percent, respectively.

In the bond market, treasuries saw substantial weakness as traders continued to digest the Fed announcement. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, surged up 11.4 basis points to a four-month closing high of 1.87 percent.

After turning in some of the market's best performances in the previous session, gold stocks turned in another strong performance. The NYSE Arca Gold Bugs Index surged up by 2.8 percent, ending the session at its best closing level in over six months.

Steel stocks also posted particularly strong gains amid optimism about the outlook for demand. Reflecting the strength in the steel sector, the NYSE Arca Steel Index advanced by 2.8 percent to a four-month closing high.

Considerable strength was also visible among housing stocks, as reflected by the 2.7 percent gain posted by the Philadelphia Housing Sector Index. With the gain, the index reached its best closing level in almost five years.

Networking, oil service, and biotechnology stocks also posted substantial gains, while pharmaceutical, airline, and trucking stocks came under pressure on the day.

Following the slew of events this past week, the economic calendar for next week is relatively light. Nonetheless, traders are likely to keep an eye on reports on housing starts, existing home sales and regional manufacturing activity in New York and Philadelphia.

by RTTNews Staff Writer

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