Friday, September 30, 2016
U.S. equities rose sharply on Friday as investors kept a close eye on Deutsche Bank shares following a fall that triggered a broad-based sell-off.
The Dow Jones industrial average jumped more than 200 points in late-morning trade before holding about 185 points higher, with Goldman Sachs contributing the most gains. The S&P 500 gained about 0.9 percent, with financials rising more than 1 percent to lead advancers.
“Yesterday’s pullback did not damage the chart of the SPX, which still has the support of improved short-term momentum. European markets look like they may be undergoing a shakeout (of weak holders) characterized by strong emotions and heavy volume,” said Katie Stockton, chief technical strategist at BTIG.
“The issues with Deutsche are the first five things everyone is talking about,” said Art Hogan, chief market strategist at Wunderlich Securities. “It’s very easy after just 8 years to get that muscle memory from Lehman in 2008. I think that was reflexive.”
Deutsche’s U.S.-listed shares hit an all-time low on Thursday after Bloomberg reported that approximately 10 hedge funds were reducing their exposure to the bank.The bank’s German-listed shares hit an all-time low overnight.
On Friday, the U.S.-listed shares rose more than 12.5 percent, recovering all of their losses from Thursday and were on pace for their best day since 2011. The stock began extending gains after AFP, citing a source,reported that the bank may be near a settlement with the U.S. Department of Justice.
“The fact that investors are buying Deutsche Bank stock is a big vote of confidence from investors,” said Adam Sarhan, CEO at Sarhan Capital.
CEO John Cryan sent the bank’s employees an internal letter earlier on Friday, trying to reassure them that Deutsche had strong fundamentals and that recent media reports were causing “unjustified concerns.”
Sarhan also said the market was receiving a boost from comments made by Federal Reserve Chair Janet Yellen Thursday after the close. In a video conference, she said the U.S. central bank might be able to help the U.S. economy in a future downturn if it could buy stocks and corporate bonds.
“This has been largely overlooked by most, but to me it sticks out like a sore thumb,” Sarhan said. “If this doesn’t scream ‘buy,’ I don’t know what does.”
U.S. stocks closed about 1 percent lower on Thursday, with the Dow falling nearly 200 points.
“Yesterday’s pullback also had a bit to do with the OPEC deal,” said Randy Frederick, vice president of trading and derivatives at Charles Schwab. “They’ve been notorious for cheating on previous deals.”
OPEC agreed to a production cut on Wednesday that would be enacted in November, but stock market participants remained skeptical on Thursday about the agreement. U.S. crude prices rose 0.5 percent to $48.06 per barrel on Friday, a day after rising 1.66 percent.
Friday also marked the end of the third quarter. Entering Friday trading, the S&P and the Dow were on track for gains of 2.49 percent and 1.19 percent, respectively. The Nasdaq, meanwhile, was on track to post a quarterly gain of 8.81 percent.
“What’s interesting about this quarter is we’ve moved but not a whole lot, from the S&P’s perspective,” said Schwab’s Frederick.
In economic news, personal spending remained flat in August, while income rose 0.2 percent. The core PCE, the Federal Reserve’s preferred inflation measure, rose 0.2 percent.
“Wage growth is still mediocre, spending is as well as healthcare takes up a larger portion of a households budget (along with rent for those that do). As for inflation, expect headline prints to continue to rise in coming quarters with the stabilization in oil prices on top of sticky services inflation,” said Peter Boockvar, chief market analyst at The Lindsey Group.
Other data released Friday included the final read on September consumer sentiment and the September Chicago PMI, both of which beat expectations.
U.S. Treasurys fell, with the two-year note yield near 0.74 percent and the benchmark 10-year yield at 1.56 percent. The U.S. dollar rose against a basket of currencies, with the euro near $1.12 and the yen around 101.3.
The Dow Jones industrial average rose 110 points, or 0.61 percent, to trade at 18,253, with United Technologies leading advancers and Visa the only decliner.
The S&P 500 gained 11 points, or 0.52 percent to trade at 2,162, with financials leading nine sectors higher and utilities and real estate the only laggards.
The Nasdaq advanced 26 points, or 0.5 percent to trade at 5,295.
About two stocks advanced for every decliner at the New York Stock Exchange, with an exchange volume of 194 million and a composite volume of 904 million in midmorning trade.
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 13.6, down about 3 percent.