US stocks rallied for the first time in three days on Wednesday after the German Constitutional Court backed the country’s role in bailing out other European countries. The ruling renewed hopes that Europe will find a solution to its long-running debt problems.
The Dow Jones industrial average jumped 253 points, or 2.3%, to 11 392 at 2.30pm. The Dow and other US indexes fell over the previous three days on worries about Europe’s debt woes and weakness in the US jobs market. All 30 stocks in the Dow rose.
“The market has been pricing in an out-and-out recession, so any hints that policy issues might be solved is a plus,” said Brian Gendreau, market strategist at Cetera Financial Group
The Standard and Poor’s 500 index jumped 31, or 2.7%, to 1 197. All 10 company groups that make up the S&P index rose. The Nasdaq composite shot up 70, or 2.8%, to 2 544.
European indexes rose broadly after the German court ruling eased fears that Europe’s bailouts of Greece and Ireland could be stalling. Germany’s DAX index surged 4.1%; France’s CAC-40 jumped 3.6%.
Treasure securities down
The ruling also pushed the prices of treasury securities lower as investors were more willing to hold risky assets like stocks. Treasury prices have been rising over the past week, sending their yields lower, as demand for lower-risk investments increased.
The yield on the 10-year treasury note rose to 2.04%. It traded at 1.97% late on Tuesday, one of the lowest rates since the Federal Reserve Bank of St Louis began keeping daily records in 1962. Gold, another traditional safe haven, fell $56, or 3%, to $1 817 an ounce. It closed at $1 891 on August 22.
Historically low treasury rates are prompting some institutional investors to see stocks as a better value. The yield on the benchmark 10-year treasury note began plunging from just over 3% on July 27 to 2.2% by the end of August. Investors were piling into lower-risk assets as the stock market swung wildly. The yield has hovered around 2% this week. An investor who buys the S&P 500 index, meanwhile, earns a 2.38% yield in the form of dividends.
“Market sentiment has actually been worse than economic data lately, and now you are seeing institutional investors saying, ‘I can get a better yield from the S&P 500 than I can from a 10-year treasury’,” said Howard Ward, portfolio manager of the GAMCO Growth Fund.
Yahoo! and the Bank of America rose sharply after announcing the departures of key executives after the market closed on Tuesday. Yahoo! gained 5%, to $13.57, after announcing that chief executive Carol Bartz had been fired. Some analysts said the move made the company a takeover target. Bartz spent nearly three years steering the company.
Bank of America jumped 7.5%, to $7.51, after the bank announced a management reorganisation that will result in two top officers leaving. The changes were seen as one of chief executive Brian Moynihan’s most dramatic moves to reshape the embattled bank. Bank of America shares have fallen 48% this year through Tuesday, compared with a 7% drop in the S&P 500 index.
Financial companies were the top performing group in the S&P 500 index. JP Morgan Chase & Co, Goldman Sachs and Wells Fargo each rose more than 2%.
A Federal Reserve survey found that that the economy grew modestly in its 12 bank regions in July and August as consumers spent more. — Sapa-AP