Closing Market Summary: Stocks Climb While ECB Announces Additional Easing
The stock market finished the Thursday session on an upbeat note after receiving a shot in the arm from an easing announcement made by the European Central Bank. Small-cap stocks led the way with the Russell 2000 climbing 2.1%, while the S&P 500 advanced 0.7% with all ten sectors posting gains.
This morning, the European Central Bank announced several easing measures after the past few months were filled with speculation surrounding potential stimulus from the ECB. The central bank lowered all three of its interest rates (main refinancing rate to 0.15% from 0.25%, marginal lending facility rate to 0.40% from 0.75%, and deposit facility rate to -0.10% from 0.00%), announced the deployment of a targeted long term refinancing operation [LTRO], and said preparations for purchases of asset-backed securities have begun. In addition, the ECB announced it will stop sterilizing purchases under its Securities Market Program [SMP].
One of the factors that forced the action was the continued strength of the euro, which has been stubbornly holding just below its best level since late 2011. Today's announcement knocked the single currency down...for about three hours. The euro/dollar pair slumped from 1.3600 to 1.3500 following the announcement, but rallied all the way to 1.3655 by the end of the New York session. Conversely, the Dollar Index (80.39, -0.28), which was boosted initially, slumped to lows by the close.
Meanwhile, equity indices began with slim gains, but slipped into the red during the first hour of action. However, that weakness did not stick as small-caps bounced, taking the broader market along for the ride.
To be sure, the market also received an encouraging push from fund manager David Tepper, who said his chief market concerns have been alleviated by today's ECB action. This came after Mr. Tepper caused quite a market stir with a comment not that long ago that "it's nervous time" and that he wouldn't advise getting "too freakin' long." In all fairness, Mr. Tepper did not advise shorting the market in his prior comments, but today's remarks were decidedly more optimistic.
The industrial sector (+1.1%) ended in the lead, thanks in part to a 6.7% gain in the shares of Joy Global (JOY 61.70, +3.85) after the company reported better than expected earnings. Dow component Caterpillar (CAT 106.96, +2.65) rallied in sympathy, while other areas of the sector like defense contractors (PHLX Defense Index +1.5%) and transport stocks (Dow Jones Transportation Average +0.8%) also displayed relative strength.
Industrials notwithstanding, three of the remaining five cyclical sectors also finished ahead of the broader market, while energy (+0.6%) and materials (+0.4%) lagged. Meanwhile, the countercyclical side saw relative strength among utilities (+0.8%), while consumer staples (+0.4%), health care (+0.2%), and telecom services (+0.04%) lagged.
Interestingly, the underperformance of the health care sector did not stop biotechnology from rallying alongside other high-growth names. The iShares Nasdaq Biotechnology ETF (IBB 245.19, +1.72) climbed 0.7%.
Strikingly, the broad-based rally did not lure money away from the Treasury market. The 10-yr note slumped immediately following the release, but rallied off those lows, ending higher by five ticks with its yield down two basis points at 2.58%.
Today's participation marked an improvement from recent days, but the final tally of 615 million was still below the longer-term average of 700 million.
Economic data was limited:Tomorrow, the Nonfarm Payrolls report for May will be released at 8:30 ET (consensus 220K), while the April Consumer Credit report (consensus $15.00 billion) will cross the wires at 15:00 ET.
- Initial claims for the week ending May 31 were 312,000. That was up 8,000 from an upwardly revised reading of 304,000 (from 300,000) in the prior week and basically in-line with the consensus estimate. According to the Department of Labor, there were no special factors impacting the initial claims reading. The latest entry left the four-week moving average at 310,250, down 2,250 from the previous week's revised average. That is the lowest four-week moving average since June 2007.
- Continuing claims fell by 20,000 to 2.603 mln (consensus 2.650 mln) for the week ending May 24 versus a downwardly revised 2.623 mln (from 2.631) in the prior week. That left the four-week moving average for this series at 2.635 mln, down 18,250 from the prior week. That is the lowest level since December 2007.
- S&P 500 +5.0% YTD
- Nasdaq Composite +2.9% YTD
- Dow Jones Industrial Average +1.6% YTD
- Russell 2000 -0.7% YTD