Stocks Move Sharply Higher Following Recent Weakness - U.S. Commentary

(RTTNews) - Extending the rebound seen over the course of the previous session, stocks moved sharply higher during trading on Friday. The gains on the day partly offset the recent sell-off on Wall Street, although the major averages remain well off their mid-September highs.

The major averages ended the day firmly in positive territory but off their best levels of the session. The Dow soared 263.17 points or 1.6 percent to 16,380.41, the Nasdaq jumped 41.05 points or 1 percent to 4,258.44 and the S&P 500 surged up 24.00 points or 1.3 percent to 1,886.76.

Despite the recovery, the major averages all moved lower for the week. The Nasdaq dipped by 0.4 percent, while the Dow and the S&P 500 both fell by 1 percent.

The rally on Wall Street partly reflected speculation that the Federal Reserve may delay the end of its asset purchase program following yesterday's comments from St. Louis Fed President James Bullard.

In an interview with Bloomberg News on Thursday, Bullard suggested that the Fed should consider delaying the end of the program to halt the decline in inflation expectations.

The Fed has previously indicated that it plans to bring its asset purchase program to a close at its next monetary policy meeting later this month.

Meanwhile, Boston Fed President Eric Rosengren told CNBC in an interview on Friday that the U.S. is not expected to need another round of quantitative easing but cautioned that he couldn't rule it out.

"If the economy got weak enough that it was required, we should do it. I certainly hope and I don't expect that will be the case, but I can't rule anything out at this time," Rosengren said on CNBC's Squawk Box.

A positive reaction to the latest batch of earnings news also helped push the markets higher, with General Electric (GE) and Morgan Stanley (MS) posting strong gains after reporting better than expected third quarter earnings.

Better than expected readings on new residential construction in September and consumer sentiment in October also contributed to the buying interest.

The Commerce Department released a report before the start of trading showing that housing starts rebounded by more than expected in the month of September.

The report said housing starts climbed 6.3 percent to a seasonally adjusted annual rate of 1.017 million in September after tumbling 12.8 percent to a rate of 957,000 in August. Economists had expected housing starts to rise to a rate of 1.008 million.

Additionally, Reuters and the University of Michigan released a report showing an unexpected improvement in consumer sentiment in the month of October.

The report said the preliminary reading on the consumer sentiment index for October came in at 86.4 compared to the final September reading of 84.6. Economists had expected the index to edge down to a reading of 84.0.

With the unexpected increase, Reuters said the consumer sentiment index rose to its highest level since July of 2007.

Sector News

Housing stocks moved sharply higher over the course of the session following the release of the upbeat housing starts data. The Philadelphia Housing Sector Index surged up by 3.1 percent, climbing further off the eleven-month closing low it set on Monday.

Hovnanian Enterprises (HOV), D.R. Horton (DHI), and KB Home (KBH) turned in some of the housing sector's best performances on the day.

Significant strength also emerged among railroad stocks, as reflected by the 2 percent gain posted by the Dow Jones Railroads Index. Greenbrier (GBX) helped lead the sector higher, jumping by 5.1 percent.

Computer hardware stocks also saw considerable strength, resulting in a 1.9 percent advance by the NYSE Arca Computer Hardware Index. Logitech (LOGI) posted a standout gain.

Defense, software, networking, and healthcare stocks also saw notable strength amid broad based buying interest, while gold stocks were among the few groups to buck the uptrend.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance during trading on Friday. Japan's Nikkei 225 Index tumbled by 1.4 percent, while Hong Kong's Hang Seng Index rose by 0.5 percent.

Meanwhile, the major European markets all showed substantial moves to the upside on the day. While the U.K.'s FTSE 100 Index jumped by 1.9 percent, the French CAC 40 Index and the German DAX Index surged up by 2.9 percent and 3.1 percent, respectively.

In the bond market, treasuries moved notably lower, extending yesterday's pullback off their recent highs. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, advanced by 4.6 basis points to 2.199 percent.

Looking Ahead

Earnings news is likely to move into the spotlight next week, as the economic calendar is relatively quiet following the slew of data released over the past few days.

Apple (AAPL), IBM (IBM), Coca-Cola (KO), McDonald's (MCD), Yahoo! (YHOO), General Motors (GM), AT&T (T), Amazon (AMZN), and Microsoft (MSFT) are among the big-name companies due to report their quarterly results next week.

Nonetheless, traders are also likely to keep a close eye on reports on new and existing home sales, consumer prices, and weekly jobless claims.