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Stocks Close Firmly Positive After Initial Upward Move - U.S. Commentary


After moving to the upside in early trading on Wednesday, stocks continued to perform well throughout the session. The markets benefited from easing concerns about Cyprus as well as a positive reaction to the Federal Reserve's monetary policy announcement.

The major averages ended the day firmly in positive territory, although the Dow and the S&P 500 fell short of setting new record closing highs. The Dow rose 55.91 points or 0.4 percent to 14,511.73, the Nasdaq advanced 25.09 points or 0.8 percent to 3,254.19 and the S&P 500 climbed 10.37 points or 0.7 percent to 1,558.71.

The early strength on Wall Street came as traders shrugged off continued uncertainty about the situation in Cyprus after the Mediterranean island nation's parliament rejected a proposed European Union bailout plan that would tax bank deposits.

Traders seemed to express optimism that Cyprus will eventually reach an agreement to avoid default even if it means looking to Russia for a new loan instead of the EU.

"The Cyprus government will attempt to renegotiate the bailout package," Commerzbank economists Jörg Krämer and Christoph Weil said in a research note.

"Cyprus will either find new (Russian) sources of capital or it will agree to a slightly modified rescue package," they added. "No one can rule out the possibility of negotiations failing again though."

Stocks saw continued strength after the Federal Reserve's monetary policy-setting Federal Open Market Committee released a statement that was little changed from the policy statement released in January.

As was widely expected, the FOMC decided to keep the target range for the federal funds rate at zero to 0.25 percent and said it would continue its asset purchase program at a pace of $85 billion a month.

However, the statement noted that information received since that last FOMC meeting in January suggests a return to moderate economic growth following a pause late last year.

In his subsequent press conference, Federal Reserve Chairman Ben Bernanke expressed confidence in the economic recovery but indicated that the central bank would maintain its quantitative easing program for the foreseeable future.

While Bernanke acknowledged signs of improvement in labor market conditions, he said that the Fed is looking for indications of sustained rather than temporary improvement.

Sector News

Housing stocks showed a substantial move to the upside over the course of the trading day, resulting in a 2.8 percent gain by the Philadelphia Housing Sector Index. The gain extended a recent upward move by the index, which reached its best closing level in well over five years.

Lennar (LEN) turned in one of the housing sector's best performances, with the homebuilder surging up by 4.8 percent after reporting better than expected first quarter earnings.

Considerable strength also emerged among brokerage stocks, as reflected by the 1.6 percent gain posted by the NYSE Arca Broker/Dealer Index. E*Trade Financial (ETFC) and Nomura Holdings (NMR) posted strong gains.

Airline stocks also extended a recent move to the upside, driving the NYSE Arca Airline Index up by 1.6 percent to a new six-year closing high.

Most of the other major sectors also moved higher on the day, with internet, semiconductor, and retail stocks posting notable gains.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in another mixed performance on Wednesday, with the Japanese market closed for a public holiday. Hong Kong's Hang Seng Index advanced by 1 percent, while Australia's All Ordinaries Index fell by 0.4 percent.

The major European markets also ended the day mixed. While the U.K.'s FTSE 100 Index edged down by 0.1 percent, the German DAX Index rose by 0.7 percent and the French CAC 40 Index surged up by 1.4 percent.

In the bond market, treasuries closed moderately lower, giving back some ground following recent strength. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 2.9 basis points to 1.937 percent.

Looking Ahead

Trading on Thursday could be impacted by the release of a batch of U.S. economic data, with reports on weekly jobless claims, existing home sales, Philadelphia-area manufacturing activity, and leading economic indicators all scheduled to be released.

Nonetheless, the slew of data could be overshadowed by any significant developments regarding the proposed bailout of Cyprus.

by RTTNews Staff Writer

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