Stocks rose on a broad front Thursday, with almost all sectors participating, following easing from the European Central Bank.
The Dow Jones Industrial Average and the S&P 500 hit record intraday and closing highs. And the S&P had all 10 of its sectors advance, led by the industrial stocks. But the big winners were the small-cap stocks, and the Russell 2000 jumped 2%, breaking a logjam that has plagued the index for weeks.
The rally was the product of actions by the ECB to help the eurozone’s recovery. It cut its main lending rate, introduced a negative deposit rate and said that it was prepared to do more if needed. These measures followed stimulative policies from the Bank of Japan. The market was buoyed and broke higher, following comments from fund manager David Tepper who said that his chief concerns have been “alleviated by today’s ECB action.” Previously, Tepper had been very cautious.
In the U.S., initial jobless benefits increased by 8,000 to 312,000 (310,000 expected).
At the close, the Dow Jones Industrial Average rose 99 points to 16,836, the S&P 500 gained 13 points to finish at 1940, and the Nasdaq jumped 45 points to 4,296. The NYSE traded total volume of 3.1 billion shares, and the Nasdaq crossed 1.9 billion. On the Big Board advancers outpaced decliners by 3.5 to 1, and on the Nasdaq, advancers were ahead by 3.6 to 1.
Mr. Market finally gave the technical push that we’ve been waiting for.
The DJIA convincingly broke from a six-month cup-and-handle formation (very bullish pattern) by advancing almost 100 points and closing just shy of its intraday high. The target for the breakout can be calculated by subtracting the closing low of 15,373 from the resistance line at 16,576 = 1,203, added to 16,576 = 17,779.
The small- and midcap stocks finally broke from the narrow range that has held them captive since mid-April. The 22-point breakout by the Russell 2000 (small caps) created the right leg of a bullish “V” formation. Barring any unusually bearish news, the small caps should have little resistance until reaching the late-January closing high at 1,181.
Conclusion
Strong across-the-board buying with a lack of sellers propelled the major big-cap indices to new closing highs. But the most significant rally took place in the small- and midcap stocks, which until yesterday were mired in a tight band of resistance. The result of their breakout is the first step in solving the “bifurcation” problem that has stymied the forward progress of the Dow Industrials and the S&P 500. The “big caps” have been making new highs, but at a snail’s pace.
With major money managers, like Tepper, finally convinced that the bull market is resuming, we should expect higher volume, broader breadth and higher prices from stocks throughout the summer.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.
