US stocks finished the first half of the year with a bang as investors welcomed news that the eurozone is a step closer to solving its 30-month-long debt crisis.
The S&P 500 and the NASDAQ posted their best daily percentage gains since December on Friday after an agreement by European leaders to stabilize the region’s troubled banks, a pact that helped remove some of the uncertainty that has plagued markets.
Under pressure to prevent a catastrophic breakup of their single currency, eurozone leaders agreed on Friday to let their rescue fund inject aid directly into stricken banks starting next year and intervene in bond markets to support troubled member states.
They also pledged to create a single banking supervisor for eurozone banks based around the European Central Bank (ECB) in a landmark first step to ward a European banking union that could help shore up struggling member Spain.
Wall Street’s previous reaction to eurozone bailout packages or other rescue plans had been somewhat muted. Initial gains would quickly disappear by the day’s end as investors realized that there isn’t a quick fix to the region’s problems. On Friday, it was a different story. The three major US stock indices jumped 1.5 to 2 percent shortly after the opening bell on news of the eurozone agreement.
By the close, stocks ended at session highs with the major indices up between 2 percent and 3 percent. The Dow Jones Industrial Average surged 277.83 points, or 2.20 percent, to end at 12,880.09. The Standard & Poor’s 500 Index jumped 33.12 points, or 2.49 percent, to finish at 1,362.16. And the NASDAQ Composite Index shot up 85.56 points, or 3.00 percent, to close at 2,935.05.
For the week, the Dow rose 1.9 percent, the S&P 500 advanced 2 percent and the NASDAQ gained 1.5 percent.
For the month, the Dow added 3.9 percent, the S&P 500 advanced 4 percent and the NASDAQ climbed 3.8 percent.
However, for the second quarter, the Dow dropped 2.5 percent, the S&P 500 slid 3.3 percent and the NASDAQ lost 5.1 percent.
Despite the weak second quarter, the three major US stock indices wrapped up the first half of the year with decent gains: The Dow was up 5.4 percent, the S&P 500 was up 8.3 percent and the NASDAQ was up 12.7 percent.
“The next question is whether the ESM/EFSF [European Stability Mechanism/European Financial Stability Facility] will have enough capital and assuming they don’t, will the ECB chip in by giving it a bank license, thus leveraging its size. That is yet to be determined,” said Peter Boockvar, equity strategist at Miller Tabak & Co in New York.
“For now, party on and turn that hourglass over as more time has been bought, but only the symptoms are being fought as the underlying disease of excessive debt and lack of growth still remains,” he said.
Any market reaction to further developments next week could be exaggerated by lighter-than-usual volume. Wall Street trading desks may be more sparsely populated because it will be a short week. US stock markets will be closed on Wednesday, the Fourth of July, in observance of Independence Day. That could break any weekly momentum when Wall Street resumes trading on Thursday.