Optimism About Greece Leads To Rally On Wall Street - U.S. Commentary

(RTTNews) - Stocks moved sharply higher over the course of the trading day on Friday, adding to the modest gains posted in the previous session. The strong gains on the day lifted the major averages further off the multi-month closing lows set on Wednesday.

The major averages pulled back off their highs going into the close but remained firmly positive. The Dow jumped 211.79 points or 1.2 percent to 17,760.41, the Nasdaq soared 75.30 points or 1.5 percent to 4,997.70 and the S&P 500 surged up 25.31 points or 1.2 percent to 2,076.62.

With the volatility seen over the past few sessions, the major averages closed roughly flat for the week. While the Dow crept up by 0.2 percent, the Nasdaq edged down by 0.2 percent and the S&P 500 was nearly unchanged.

The rally on Wall Street partly reflected optimism Greece will finally be able to reach a new agreement with its creditors.

In a move seen as Greece's final bid to remain in the eurozone, the government offered a cash-for-reforms proposal to creditors that includes spending cuts and tax hikes in exchange for a third bailout.

Prime Minister Alexis Tsipras' request for at least 53.5 billion euros in bailout funds for the next three years was presented to the Greek parliament for approval.

Eurozone finance ministers will meet on Saturday in Brussels to review the Greek request, followed by a summit of European leaders on Sunday to reach a final agreement.

"The realistic proposal from Greece will have to be matched by an equally realistic proposal on debt sustainability from the creditors," European Union President Donald Tusk told reporters. "Only then will we have a win-win situation."

Buying interest was also generated by a continued rebound by the Chinese stock markets, as the Shanghai Composite Index jumped by 4.5 percent following yesterday's 5.8 percent gain.

Chinese stocks benefited from expectations the country's central bank will unveil further measures to support the market over the weekend.

Meanwhile, traders seemed to shrug off remarks by Federal Reserve Chair Janet Yellen, who said it would be appropriate to begin raising interest rates this year.

"Based on my outlook, I expect that it will be appropriate at some point later this year to take the first step to raise the federal funds rate and thus begin normalizing monetary policy," Yellen said in a speech in Cleveland.

She added, "But I want to emphasize that the course of the economy and inflation remains highly uncertain, and unanticipated developments could delay or accelerate this first step."

Paul Ashworth, Chief U.S. Economist at Capital Economics, noted Yellen dealt with the problem of what to say about Greece, where the outlook is constantly changing, by largely ignoring the issue altogether.

Sector News

Adding to the strong gains posted in the previous session, airline stocks saw substantial strength on the day. The NYSE Arca Airline Index surged up by 3.5 percent, climbing further off the eight-month closing low set on Wednesday.

Alaska Air Group (ALK) and Delta Air Lines (DAL) turned in two of the sector's best performances, jumping by 6 percent and 4.7 percent, respectively.

Considerable strength was also visible among pharmaceutical stocks, as reflected by the 2.3 percent gain posted by the NYSE Arca Pharmaceutical Index. Sanofi (SNY) and Novo Nordisk (NVO) posted standout gains.

Semiconductor stocks also turned in a strong performance after coming under pressure in the previous session. The Philadelphia Oil Service Index shot up by 1.9 percent, bouncing off its worst closing level in nearly eight months.

Tobacco, networking, brokerage, and housing stock also saw notable strength, reflecting broad based buying interest on Wall Street.

Meanwhile, gold stocks were among the few groups to buck the uptrend, dragging the NYSE Arca Gold Bugs Index down by 1 percent. The weakness in the sector came amid a modest decrease by the price of gold.

Other Markets

In overseas trading, most stock markets across the Asia-Pacific region saw continued strength on Friday. Hong Kong's Hang Seng Index surged up by 2.1 percent, and Australia's All Ordinaries Index rose by 0.4 percent. However, Japan's Nikkei 225 Index bucked the uptrend and fell 0.4 percent.

The major European markets saw considerable strength amid optimism about a Greek deal. While the U.K.'s FTSE 100 Index jumped by 1.4 percent, the German DAX Index and the French CAC 40 Index soared by 2.9 percent and 3.1 percent, respectively.

In the bond market, treasuries extended the substantial pullback seen over the course of the previous sessions. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, shot up 11.6 basis points to 2.417 percent.

Looking Ahead

The weekend's developments regarding Greece are likely to be a key driver of trading early next week, although U.S. reports on retail sales, inflation, and housing starts may attract attention as the week progresses.

Traders are also likely to keep a close eye on Yellen's semi-annual testimony before both the House Financial Services Committee and the Senate Banking Committee.

Earnings news is also likely to attract attention, as the reporting season starts to pick up with the release of quarterly results from a slew of big-name companies.

JP Morgan (JPM), Wells Fargo (WFC), Bank of America (BAC), Intel (INTC), Netflix (NFLX), Citigroup (C), eBay (EBAY), Goldman Sachs (GS), Google (GOOG), and General Electric (GE) are among the companies due to report their results next week.