Stocks Rise on Fed Stimulus Hopes


NEW YORK (TheStreet) -- U.S. stocks jumped Thursday on ballooning hopes that additional stimulus is on the way from the Federal Reserve following a disappointing initial jobless claims number.

Adding to the positive sentiment late in the day was a report from Reuters late in the session that the central banks of the world's biggest economies are prepping a coordinated response to stabilize the situation if the outcome of Greece's general elections this weekend spooks the markets.

Trading has been volatile all week ahead of the elections, which are seen as a referendum on whether the country will be able to remain part of the eurozone.

The Dow Jones Industrial Average jumped more than 155 points, or 1.2%, to close at 12,652, returning to positive territory for the week. The blue-chip index hit a high of 12,699 during the session.

The S&P 500 added 14 points, or 1.1%, to finish at 1329, and the Nasdaq gained nearly 18 points, or 0.60%, to settle at 2836.

Within the Dow, 28 of the index's 30 components rose, led by Home Depot ( HD), Bank of America ( BAC), Travelers ( TRV) and Walt Disney ( DIS).

Sirius XM's Greatest Fear: Apple in the Driver's Seat

Conglomerates, consumer staples, healthcare and services lead the gains in the broad market, where winners outpaced losers by a more than 2-to-1 ratio on both the New York Stock Exchange and the Nasdaq.

American Express ( AXP) and Boeing ( BA) were the only blue chips moving lower.

Reports that Greek citizens were emptying their bank accounts ahead of the elections continued to roll in but their impact was countered by rumblings that support is building for the country's pro-bailout political parties.

"The near-term danger is the bank runs in Europe, and we're seeing large outflows out of Greek banks and we're starting to see them out of Spanish banks as well," said Brad Sorensen, market and sector research director, Charles Schwab. "It's certainly not a bank run yet, but it's never a bank run until it is a bank run."

In France, President François Hollande's Socialist Party and other leftists look to be on that path to victory in the French National Assembly after last Sunday's first round of voting; the decisive vote is slated to occur this Sunday.

That the second round could solidify Hollande's power "is somewhat concerning," said Sorensen, since he has been adamant about renegotiating some of the terms of the austerity measures that France had agreed to in the past, which Germany could look at unfavorably.

"If France and Germany can't come to an agreement about how to combat the eurozone crisis, there's really no hope of a massive eurozone type agreement going forward," said Sorensen.

Late Wednesday, Moody's downgraded Spain's debt rating to just a notch above junk territory -- pending a review for another potential downgrade -- citing the country's mounting debt burden, ailing economy, and challenges tapping into the capital markets.

The downgrade follows Spain's request for a €100 billion credit line from Europe to shore up its banking system.

The Spanish 10-year yield earlier Thursday breached the 7% level, new record highs.

With Spanish contagion fears abounding and concerns that Italy will be the next eurozone country to request a bailout, Italy was able to raise its target €4.5 billion in a bond auction Thursday but at soaring borrowing costs.

The FTSE in London settled down 0.3% and the DAX in Germany fell 0.2%. Hong Kong's Hang Seng index settled lower by 1.2% and Japan's Nikkei Average fell 0.2%.

The benchmark 10-year Treasury fell 14/32, raising the yield to 1.643%, while the dollar was off 0.39%, according to the dollar index.

July crude oil futures settled up $1.29 to $83.91 a barrel. August gold futures added 20 cents to settle at $1,619.60 an ounce.

Fueling fears that the U.S. economy is becoming more vulnerable to the crisis in the eurozone, the Labor Department on Thursday reported that U.S. initial jobless claims for the week ended June 9 rose to 386,000, up from the previous week's upwardly revised 380,000. Economists surveyed by Briefing.com had predicted new filings of 375,000.

The four-week moving average was 382,000, an increase of 3,500 from the previous week's 378,500.

Continuing claims for the week ended June 2 were 3.278 million, a decrease of 33,000 from the preceding week's 3.311 million.

The Labor Department also reported that the consumer price index fell 0.3% in May, matching expectations, with the core price index, excluding food and energy, rising 0.2%. Year over year, the CPI fell to 1.7%, below the Fed's 2% inflation target for the first time in more than a year, and the core CPI remained unchanged at 2.3%.

"This CPI report will give the Federal Reserve a lot of cover to continue their policy of providing liquidity and continuing with the negative interest rate policies that they've implemented," said Marty Leclerc, chief investment officer, Barrack Yard Advisors.

The Commerce Department, meanwhile, said that the first-quarter U.S. current account deficit increased to $137.3 billion.

Neal Soss, chief economist at Credit Suisse, said his team expects the Federal Open Market Committee to vote next week for more policy accommodation, and that the most likely form this easing will take is an expansion of the Fed's ongoing maturity extension program, or Operation Twist, which was scheduled to conclude at the end of this month.

Soss said he would characterize any Fed action as "an exercise in risk management," with the "downside risks" to economy activity "intensifying" since its late April meeting.

"The FOMC majority does not believe the Fed is out of bullets."

Soss said that the FOMC could extend Operation Twist by selling short-term Treasuries up to and including part of the four-year maturity sector, and that purchases in this extended Twist operation may include both Treasuries and mortgage backed securities, a structure that would help support housing while furthering the Fed's stated goal of reducing market risk premiums.

However, Soss said that a third round of quantitative easing is unlikely because it is "so contentious within the FOMC and the broader political environment."

In corporate news, Kroger ( KR) gained 6% after the U.S. grocery store chain raised its full-year profit to $2.40 a share from the company's prior prediction of up to $2.38. Kroger added that its board approved a new $1 billion share buyback program.

Nokia ( NOK), the Finnish handset maker, plans to cut 10,000 jobs globally and close plants by the end of 2013 in an effort to save costs. Nokia said Thursday it plans to close its core manufacturing plant in Finland, and shut other research and development projects.

The company also said its second-quarter loss from its smartphones business would be larger than expected. Nokia said it would record additional restructuring charges by the end of next year of about €1 billion. Shares of Nokia dropped 16%.

Family Dollar Stores ( FDO) jumped 4% as an MKM Partners analyst raised his earnings target for the company.

Smithfield Foods ( SFD) , the meat processor, reported fourth-quarter earnings Thursday of $79.5 million, or 49 cents a share, down from year-earlier earnings of $98.4 million, or 59 cents. Analysts, on average, expected the company to post quarterly earnings of 53 cents a share.

Sales rose 3% to $3.21 billion; analysts were forecasting sales of $3.26 billion.

Shares of Smithfield Foods fell nearly 6%.

Costco ( COST) announced Thursday that it was purchasing Controladora Comercial Mexicana's 50% stake in Costco de Mexico for about $760.4 million. Shares added 2.7%.


-- Written by Andrea Tse and Shanthi Bharatwaj in New York.

>To contact the writer of this article, click here: Andrea Tse.

More from Markets

Global Stocks Ease as Investors Focus on Dollar, Oil, Italy After US-China Truce

Global Stocks Ease as Investors Focus on Dollar, Oil, Italy After US-China Truce

Replay: Jim Cramer on Tariffs, the Market Rally, Caterpillar and Micron

Replay: Jim Cramer on Tariffs, the Market Rally, Caterpillar and Micron

Video: When Planning for Retirement, Don't Underestimate Your Life Span

Video: When Planning for Retirement, Don't Underestimate Your Life Span

Video: Here's What May Come Next for Theranos Founder and CEO Elizabeth Holmes

Video: Here's What May Come Next for Theranos Founder and CEO Elizabeth Holmes

Charlie Gasparino Says GE Is Reportedly Looking to Slash Its Dividend Again

Charlie Gasparino Says GE Is Reportedly Looking to Slash Its Dividend Again