US stocks surged higher this week as investors were reassured by the US Federal Reserve, cheered by the US Congress’ move to raise the debt ceiling and undeterred by disappointing economic data.
The Dow Jones Industrial Average jumped 360.31 (2.28 percent) to post its biggest weekly increase of the year and close at 16,154.39, while the broad-based S&P 500 rose 41.61 (2.32 percent) to 1,838.63 and the tech-rich NASDAQ Composite Index vaulted 118.17 (2.86 percent) higher to 4,244.03. The results marked the second straight week of gains for the market.
S&P Capital IQ chief investment strategist Sam Stovall said the rally reflects renewed confidence that concerns over emerging economies and some disappointing earnings results were exaggerated. The Dow lost more than 5 percent of its value last month due to these worries.
“Investors are seeing that the economy is still strong enough to deal with [the Fed’s] tapering” of stimulus, Stovall said. “The news that caused us to fall into this tailspin was not severe enough to warrant such a decline.”
Investors smiled on US Fed Chair Janet Yellen’s first appearance before a congressional panel since assuming the post at the US central bank. Analysts said Yellen’s testimony was not particularly “dovish,” as she confirmed the Fed’s plan remains to taper stimulus based on the conclusion that the economy is improving.
However, Yellen presented a seamless transition from predecessor Ben Bernanke, analysts said. Her tone was so similar to Bernanke’s that Wells Fargo analyst Scott Wren speculated if Bernanke had written Yellen’s opening statement.
“It will be hard to detect any change in ‘personality’ between the Bernanke Fed and the Yellen Fed,” Wren said.
If Yellen’s appearance was notable for its lack of surprises, the move by Republican leaders in the US House of Representatives and Senate to extend the nation’s borrowing authority through next year was a positive surprise for investors.
Investors were dreading another brawl that could have rattled investors, but Republican powerbrokers opted against attaching controversial amendments to the bill to raise the US debt ceiling.
“Passage of the debt ceiling suspension supports our view that investors should experience ‘smoother sailing’ in 2014 than 2013 in terms of economic growth and disruptive Washington policy,” Fred Dickson of DA Davidson & Co said.
Some of the week’s economic data was disappointing. US retail sales fell 0.4 percent last month, while industrial production also saw an unexpected dip, but the Fed said the decline in industrial output was partly due to “the severe weather that curtailed production in some regions of the country.”
Analysts said there is a growing sense that recent economic data points are stilted by weather.
“We don’t know exactly what is going on under the weather,” FTN Financial chief economist Chris Low said.
A lot of the weak data “is weather-related,” Stovall said.
The week’s biggest corporate story was Comcast Corp’s announcement that it was acquiring Time Warner Cable Inc in a deal worth about US$45.2 billion.
Comcast said the plan would allow it to deploy new technologies for delivering streaming content and use the Internet cloud with greater efficiency. However, consumer activists haveblasted the proposed deal for giving too much market power to Comcast.