Traders work the floor of the New York Stock Exchange on Wednesday, Nov. 30.Richard Drew
A flow of good news, highlighted by a co-ordinated move by central banks, sent stocks on their biggest one-day rally in three-and-a-half months on Wednesday – even as some observers continue to fret over the health of the global economy.
The Dow Jones industrial average closed at 12,045.68, up 490.05 points or 4.2 per cent. The broader S&P 500 closed at 1246.96, up 51.77 points or 4.3 per cent. In Canada, the S&P/TSX composite index closed at 12,204.11, up 471.61 points or 4 per cent.
Overseas moves were strong as well: The U.K.'s FTSE 100 rose 3.2 per cent and Germany's DAX index rose 5 per cent.
Stocks pointed to modest gains well before North American markets opened after Chinese authorities cut the reserve requirements among its banks, providing stimulus for an economy that has been showing troubling signs of slowing down too much in recent months.
However, the co-ordinated action from central bankers to ease financial strains among European banks – essentially lowering their borrowing costs on U.S. dollars to keep money flowing to businesses – gave stocks their biggest boost.
Meanwhile, the U.S. economy also produced some good news: The ADP report on U.S. private sector employment for November showed an impressive gain of 206,000 jobs. That tops October's 130,000 gain and blows past economists' expectations as they look ahead to the all-important non-farm payrolls report from the Labor Department on Friday.
As well, an index of Chicago-area manufacturing activity rose to 62.6 from 58.4, also beating expectations and rising to a seven-month high. And pending U.S. home sales rose 10.4 per cent in October, in the biggest move in a year. Even Canada produced some good news. Its economy grew at an annualized pace of 3.5 per cent in the third quarter, following a 0.5 per cent contraction in the second quarter.
With this sort of positive backdrop, it is no wonder that stock market gains were broad, lifting all 30 stocks within the Dow. Stocks with a lot of exposure to the global economy led the way: JPMorgan Chase & Co. rose 8.8 per cent, Bank of America Corp. rose 7.1 per cent, General Electric Co. rose 6.6 per cent and Alcoa Inc. rose 7.6 per cent.
In Canada, Royal Bank of Canada rose 5 per cent and Suncor Energy Inc. rose 4.7 per cent, after the price of oil crept above $100 (U.S.) a barrel. Even gold producers participated in the rally after the price of gold moved with stocks, rising to $1,750.30 an ounce, up $31.40.
Still, observers pointed out that the co-ordinated response from central bankers does not address Europe's sovereign-debt crisis directly. Bond yields among some of the more troubled European countries did retreat – which is a good sign for their borrowing costs – but remained elevated. The yield on the 10-year Italian government bond fell 0.2 percentage points, to just under 7 per cent.
David Berman