Japanese Stimulus Surprise Leads To Rally On Wall Street - U.S. Commentary

(RTTNews) - Stocks moved sharply higher over the course of the trading day on Friday following an unexpected monetary policy decision out of Japan. The gains on the day lifted the Dow and the S&P 500 to new record closing highs, while the Nasdaq reached its best closing level since 2000.

After seeing early strength, the major averages moved roughly sideways, hovering firmly in positive territory. The Dow climbed 195.10 points or 1.1 percent to 17,390.52, the Nasdaq surged up 64.60 points or 1.4 percent to 4,630.74 and the S&P 500 advanced 23.40 points or 1.2 percent to 2,018.05.

For the week, the major averages all posted substantial gains. The Dow shot up by 3.5 percent, while the Nasdaq and the S&P 500 jumped by 3.3 percent and 2.7 percent, respectively.

The strength on Wall Street largely reflected a positive reaction to news of further monetary policy easing by the Bank of Japan.

By a 5-4 vote, the Bank of Japan's Monetary Policy Board unexpectedly decided to raise the monetary base at an annual pace of about 80 trillion yen. The bank previously targeted an increase of about 60 to 70 trillion yen.

"So much for the end of QE," said Julian Jessop, Chief Global Economist at Capital Economics. "The Bank of Japan's announcement today that it is stepping up its asset purchases is a timely reminder that not everyone has to follow the Fed."

"We would be wary of speculation that an outflow of Japanese money will lift bond markets elsewhere," he added. "Nonetheless, further QE in Japan should help to support equity prices worldwide and especially in the euro-zone if expectations build that the ECB will follow with full-blown QE of its own."

Another upbeat reading on U.S. consumer sentiment also generated some positive sentiment, with a report from Thomson Reuters and the University of Michigan showing that sentiment improved by more than previously estimated in October.

The report said the final reading on the consumer sentiment index for October came in at 86.9 compared to the mid-month reading of 86.4. Economists had expected the index to be unrevised.

With the unexpected upward revision, the index rose from the final September reading of 84.6 to reach its highest level since July of 2007.

The Conference Board's consumer confidence index also came in better than expected earlier in the week, generating some optimism about the holiday shopping season.

Meanwhile, traders largely shrugged off a separate Commerce Department report showing an unexpected drop in U.S. personal spending in the month of September.

Sector News

While most of the major sectors moved to the upside on the day, semiconductor stocks posted particularly strong gains. The Philadelphia Semiconductor Index surged up by 3.9 percent, reaching its best closing level in a month.

Microchip Technology (MCHP) helped to lead the semiconductor sector higher, jumping 4.9 percent after reporting second quarter earnings that matched analyst estimates.

Considerable strength also emerged among airline stocks, as reflected by the 2.9 percent gain posted by the NYSE Arca Airline Index. The gain extended a recent upward move by the index, which reached a twelve-year closing high.

Internet stocks also saw significant strength on the day, driving the Dow Jones Internet Index up by 2.6 percent. Expedia (EXPE) posted a standout gain after reporting better than expected third quarter results.

Brokerage, computer hardware, steel, and chemical stocks also moved notably higher, reflecting broad based buying interest.

However, gold stocks bucked the uptrend amid a sharp drop by the price of the precious metal. With gold for December delivery tumbling $27 to $1,171.60 an ounce, the NYSE Arca Gold Bugs Index plummeted by 5.1 percent.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region saw considerable strength on Friday following the Bank of Japan news. Japan's Nikkei 225 Index soared by 4.8 percent, while Hong Kong's Hang Seng Index jumped by 1.3 percent.

The major European markets also showed strong moves to the upside on the day. While the U.K.'s FTSE 100 Index surged up by 1.3 percent, the French CAC 40 Index and the German DAX Index soared by 2.2 percent and 2.3 percent, respectively.

In the bond market, treasuries moved moderately lower, offsetting the modest strength seen in the previous session. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 3 basis points to 2.335 percent.

Looking Ahead

Employment data is likely to move into the spotlight next week, with the Labor Department scheduled to release its closely watched monthly jobs report next Friday.

Ahead of the jobs report, trading could be impacted by data on manufacturing activity, international trade, private sector employment and labor productivity.

Traders are also likely to keep an eye on the outcome of the midterm elections next Tuesday, with Republicans expected to increase their majority in the House and potentially retake control of the Senate.

On the earnings front, Alibaba (BABA), Disney (DIS), Sprint (S), Time Warner (TWX), Priceline (PCLN), and Qualcomm (QCOM) are among the slew of companies due to report their quarterly results next week.