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U.S. Stocks Move Sharply Higher On Optimism About Global Stimulus

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Following the lackluster performance seen in the previous session, stocks moved sharply higher over the course of the trading day on Friday. The major averages all climbed firmly into positive territory after ending Thursday's trading mixed.

The major averages reached new highs late in the session but pulled back going into the close. The Dow jumped 306.62 points or 1.2 percent to 25,886.01, the Nasdaq soared 129.38 points or 1.7 percent to 7,895.99 and the S&P 500 surged up 41.08 points or 1.4 percent to 2,888.68.

Despite the strong gains on the day, the major averages moved notably lower for the week. The Dow tumbled by 1.5 percent, the S&P 500 slumped by 1 percent and the Nasdaq slid by 0.8 percent.

The rally on Wall Street partly reflected optimism about the world's central banks providing aggressive stimulus in order to prevent a global recession.

European Central Bank official Olli Rehn helped inspire confidence after expressing the need for a significant easing package in September to support the flagging eurozone economy.

The expectations for more stimulus contributed to a pullback by U.S. treasuries and a subsequent increase in bond yields.

The yield on the benchmark ten-year note dropped below the two-year yield on Wednesday, sparking fears of an impending recession and a sell-off on Wall Street.

Meanwhile, traders largely shrugged off a report from the University of Michigan showing a significant deterioration in U.S. consumer sentiment in August.

The report said the consumer sentiment index tumbled to 92.1 in August after inching up to 98.4 in July. Economists had expected the index to dip to 97.2.

With the much steeper than expected drop, the consumer sentiment index slumped to its lowest level since hitting 91.2 in January.

The deterioration in consumer sentiment came amid concerns about the proposed increase in tariffs on Chinese imports as well as the reasoning behind the Federal Reserve's interest rate cut.

"The main takeaway for consumers from the first cut in interest rates in a decade was to increase apprehensions about a possible recession," said Surveys of Consumers chief economist Richard Curtin.

He added, "Consumers concluded, following the Fed's lead, that they may need to reduce spending in anticipation of a potential recession."

Curtin said consumers are likely to reduce their pace of spending but still help keep the economy out of recession at least through mid-2020.

A separate report from the Commerce Department showed an unexpected slump in housing starts in July but a sharper than expected increase in building permits.

The report said housing starts tumbled by 4.0 percent to an annual rate of 1.191 million from the revised June estimate of 1.241 million.

The drop surprised economists, who had expected housing starts to edge up by 0.3 percent to a rate of 1.257 million from the 1.253 million originally reported for the previous month.

Meanwhile, the Commerce Department said building permits spiked by 8.4 percent to a rate of 1.336 million in July from a revised 1.232 million in June.

Building permits, an indicator of future housing demand, had been expected to jump by 4.1 percent to 1.270 million from the 1.220 million originally reported for the previous month.

Sector News

Oil service stocks showed a strong move to the upside after falling sharply over the past two weeks, driving the Philadelphia Oil Service Index up by 4 percent. The index bounced off its lowest closing level in eighteen years.

The rebound by oil service stocks came amid an increase by the price of crude oil, with crude for September delivery rising $0.40 to $54.87 a barrel.

Considerable strength was also visible among semiconductor stocks, as reflected by the 2.8 percent jump by the Philadelphia Semiconductor Index.

Graphics chipmaker Nvidia (NVDA) led the sector higher after reporting second quarter results that exceeded analyst estimates on both the top and bottom lines.

Bargain hunting also contributed to significant strength among banking stocks, resulting in a 2.5 percent spike by the KBW Bank Index.

Natural gas, computer hardware, biotechnology, and transportation stocks also moved notably higher, while gold stocks were among the few groups to buck the uptrend.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in another mixed performance during trading on Friday. Japan's Nikkei 225 Index inched up by 0.1 percent, while South Korea's Kospi slid by 0.6 percent.

Meanwhile, the major European markets all moved to the upside on the day. While the U.K.'s FTSE 100 Index climbed by 0.7 percent, the French CAC 40 Index and the German DAX Index jumped by 1.2 percent and 1.3 percent, respectively.

In the bond market, treasuries climbed off their worst levels but still closed modestly lower. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, inched up by 1 basis point to 1.539 percent.

Looking Ahead

Following this week's deluge of data, the economic calendar for next week is relatively light, although reports on new and existing home sales may attract attention along with the minutes of the latest Federal Reserve meeting and a speech by Fed Chairman Jerome Powell.

Traders are also likely to keep an eye on earnings news from retailers such as Home Depot (HD), Lowe's (LOW), Target (TGT), and Gap (GPS).

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