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Stocks Move Notably Higher, Extending Yesterday's Rally - U.S. Commentary

Wallstreet3 111212 15Jan14

Stocks moved notably higher over the course of the trading day on Wednesday, adding to the substantial gains posted in the previous session. With the gains, the S&P 500 set a new record high and the Nasdaq reached its best levels since 2000.

The major averages moved roughly sideways going into the close, holding on to strong gains. The Dow jumped 108.08 points or 0.7 percent to 16,481.94, the Nasdaq advanced 31.87 points or 0.8 percent to 4,214.88 and the S&P 500 climbed 9.50 points or 0.5 percent to 1,848.38.

The strength on Wall Street was partly due to upbeat earnings news from financial giant Bank of America (BAC), which rose by 2.3 percent after reporting substantial fourth quarter earnings growth.

Bank of America reported fourth quarter net income applicable to shareholders of $3.18 billion or $0.29 per share, up from $367 million or $0.03 per share in the year-ago period. Analysts had expected the company to report earnings of $0.26 per share.

Buying interest was also generated by news that the World Bank raised its global growth forecast based on the improvement seen in advanced economies.

The World Bank now expects the global economy to grow by 3.2 percent in 2014, stronger than the 3 percent growth it forecast in June. Economic growth is expected to pick up to 3.4 percent in 2015 and to 3.5 percent in 2016.

On the U.S. economic front, the Labor Department released a report before the start of trading showing that producer prices rose in line with economist estimates in the month of December.

The Labor Department said its producer price index rose by 0.4 percent in December after edging down by 0.1 percent in November. The increase came as higher prices for energy and tobacco products offset a drop in food prices.

Excluding food and energy prices, the core producer price index increased by 0.3 percent in December after inching up by 0.1 percent in the previous month. Economists had expected core prices to tick up by another 0.1 percent.

A separate report from the New York Federal Reserve showed that business activity for New York manufacturers expanded at a much faster pace in the month of January.

The New York Fed said its general business conditions index jumped to 12.5 in January from 2.2 in December, with a positive reading indicating an increase in regional manufacturing activity. Economists had expected the index to climb to 3.5.

Paul Dales, Senior U.S. Economist at Capital Economics, said, "December's U.S. producer prices data and January's Empire State index suggest that both industrial price pressures and activity have strengthened, albeit from low levels."

Later in the day, the Federal Reserve's Beige Book said reports from the twelve Fed districts suggest economic activity continued to expand across most regions and sectors from late November through the end of the year.

The Fed said most districts also reported positive economic outlooks, with some citing expectations of "more of the same" and some expecting a pickup in growth.

Sector News

After turning in some of the market's best performances in the previous session, electronic storage stocks saw further upside on the day. The NYSE Arca Disk Drive Index surged up by 5.8 percent to its best closing level in well over a year.

Within the storage sector, shares of Datalink (DTLK) soared 37.6 percent after the data center infrastructure and services provider raised its fourth quarter guidance.

Networking stocks also extended a recent upward trend, driving the NYSE Arca Networking Index up by 2 percent. With the gain, the index reached a new two-year closing high.

Significant strength was also visible among banking stocks, as reflected by the 1.8 percent gain posted by the Dow Jones Banks Index. JP Morgan (JPM) and Citigroup (C) posted notable gains along with Bank of America.

Software, trucking, gold and telecom stocks also saw considerable strength on the day, moving to the upside along with most of the other major sectors.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Wednesday. Japan's Nikkei 225 Index jumped by 2.5 percent following Tuesday's sell-off, while Hong Kong's Hang Seng Index rose by 0.5 percent.

The major European markets also moved to the upside on the day. While the U.K.'s FTSE 100 Index advanced by 0.8 percent, the French CAC 40 Index surged up by 1.4 percent and the German DAX Index soared by 2 percent.

In the bond market, treasuries saw modest weakness but closed well off their lows for the session. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, edged up by 1.5 basis points to 2.884 percent after reaching a high of 2.912 percent.

Looking Ahead

Trading on Thursday may be impacted by another batch of economic data, including reports on weekly jobless claims, consumer prices, and homebuilder confidence.

Additionally, outgoing Fed Chairman Ben Bernanke is scheduled to deliver remarks on the challenges facing central banks.

On the earnings front, Citigroup, Goldman Sachs (GS), and UnitedHealth (UNH) are among the companies due to report their quarterly results before the start of trading on Thursday.

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