Stocks Gain for Fifth Week as Central Banks Take Center Stage

NEW YORK (TheStreet) -- Wall Street netted record closing highs to end its fifth consecutive week of gains thanks to its friends in the central banks of China and Europe. The record-making push over Friday's session embedded the S&P 500 and Dow Jones Industrial Average firmly in double-digit-gains territory for the year.

Notching all-time highs wasn't too difficult, though, given fresh records were set a day earlier. The S&P 500 closed 0.52% higher, just 10 points shy of its highest trading mark set over the morning session. The Dow added 0.5%, while the Nasdaq surged 0.24%, near 14-year highs.

Market gains were triggered early in the day after decisive monetary easing action out from the European Central Bank and People's Bank of China soothed investors' concerns of wilting global growth.

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"Easier money responds well," Croft Funds' portfolio manager Kent Croft told TheStreet. "Europe and China are the two biggest worries, given the size of their economies, and have been for some time so any incremental good news coming out of those countries is very positive for the markets."

The European Central Bank announced it had started buying asset-backed securities in a move to resuscitate growth in the eurozone which has teetered on the cusp of deflation. ECB President Mario Draghi also reaffirmed his commitment to direct action at a banking conference in Frankfurt.

"It is essential to bring back inflation to target and without delay," Draghi addressed the crowd, promising that the ECB was prepared to do "what we must to raise inflation and inflation expectations as fast as possible."

That leaves the central bank open to a number of policy options. "The next steps are likely sovereign bond buying, and it looks as though, barring an unexpected turn around in the data, the ECB will take that tack within the first few months of 2015 (if not in December)," said BMO Capital Markets' Benjamin Reitzes in a research note.

It was a double-whammy of good news after China cut its interest rates by 25 basis points to 2.75%, its first rate cut in two years, as a solution to stalled growth in the world's second-largest economy. China's growth had slowed to a worrying five-year low of 7.3% last quarter.

The move helped China-exposed stocks to rally. Heavy machinery and construction company Caterpillar (CAT) spiked 4.3% on news of China's stimulus measures. The company gleans 20% of total revenue from the Asia/Pacific region. Joy Global (JOY) , which manufactures mining equipment, popped 2.5%.

Prior to Friday, investors had attempted to ignore worrying data out this week from the two troubled regions, training a laser focus on a resilient domestic economy to ease those concerns. On Thursday, for example, China's latest manufacturing PMI fell to a six-month low, while eurozone PMI fell to a 16-month low.

"The U.S., despite the fact that we can't seem to get out of this 2% GDP range, is certainly on firmer footing or the strongest bet on an international basis," said Sterne Agee's chief economist Lindsey Piegza in a call.

Retail stocks were mixed after celebrating a rally on Thursday. GameStop (GME) plunged 13.1% after the games retail chain reported a 2.3% drop in comparable-store sales, due to the delayed launch of popular game "Assassins Creed Unity." Ross Stores (ROST) , the best performer on the S&P, climbed 7.3% after profits came in higher than forecast, while Gap (GPS) tumbled 4.2% on reduced guidance estimates.

As for next week, though shortened due to Thanksgiving, it will be a busy one. The economic calendar includes GDP numbers, consumer confidence figures, personal income and spending reports, and durable goods.

"The stars are aligning for a surge in consumer confidence plunging gasoline prices, lower unemployment, and the rebound in stocks," said Credit Suisse analysts in a report. The firm forecasts a minor downgrade to third-quarter GDP growth to 3.4% from 3.5% and fourth-quarter GDP of 2.5%.

Piegza, and firm Sterne Agee, were slightly less optimistic for the year-ending quarter.

"We're looking for around 1.5% in the final quarter of the year," she said. "We are looking for a sizeable fall-off at the end of the year as Christmas sales are likely to come in very disappointing."

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-- Written by Keris Alison Lahiff in New York.

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