MarketView for November 30

Summary 

Oh, what a day it was on Wall Street on Wednesday. Suddenly the Street became content and happy with world events and share prices headed for the sky after major central banks agreed to make cheaper dollar loans for struggling European banks to prevent the euro-zone debt woes from turning into a full-blown credit crisis.

As a result, the Dow Jones Industrial Average chalked up its best day since March 23, 2009, while the S&P 500 scored its best daily percentage gain since August 11. The upward trend began soon after the markets digested the news that the Federal Reserve, the European Central Bank and other major central banks were heading off escalating funding pressures that threaten the key arteries of the world's financial system.

The liquidity by the world’s central banks sent the S&P financial sector index up 6.6 percent, with Bank of America being the most actively traded stock, up 7.3 percent to close at $5.44 on more than 420 million shares traded. JPMorgan Chase & Co rose 8.4 percent to close at $30.97, its largest daily percentage gain since May 2009.

Other economically sensitive sectors, including energy, materials and industrials, also were strong performers for the day. Copper and oil futures rose sharply, while the S&P materials sector index was up 5.9 percent.

The central banks' actions were intended to ensure that European banks, facing a credit crunch, have enough funding amid the euro zone's worsening sovereign debt crisis. The moves followed an unexpected cut in bank reserve requirements in China, intended to boost an economy running at its weakest pace since 2009.The gains in financial shares came despite Standard & Poor's move to cut the credit ratings of 15 big banks, mostly in Europe and the United States, late on Tuesday.

Further encouraging investors, the latest economic data suggested the economy was moving on a solider base toward recovery. The private sector added the most jobs in nearly a year in November, while business activity in the Midwest grew faster than expected in November.

For the month, the Dow gained 0.8 percent, while the Nasdaq was down 2.4 percent. The day's volume was high, with nearly 10 billion shares changing hands during the day on U.S. exchanges compared with the daily average of 7.96 billion shares.

Economic Data Encouraging

Companies created the most jobs in nearly a year in November, adding to cautious optimism that the country's labor market is beginning to right itself. Better-than-expected housing and regional factory data released on Wednesday reinforced the view that the economy should avoid a second recession.

Central banks around the world addressed some of that danger on Wednesday as they acted jointly to provide cheaper dollar liquidity to European banks facing a credit crunch. The credit crisis in the euro zone is one of the biggest dangers to the U.S. economic recovery that is still highly sensitive to shocks.

Janet Yellen, the vice chair of the U.S. Federal Reserve, said earlier in the week the central bank still has room to ease monetary policy further. The Fed has bought more than $2 trillion in long-term securities in efforts to boost the economy.

The ADP National Employment Report on Wednesday showed private employers added 206,000 jobs this month, surpassing economists' expectations for a gain of 130,000 jobs. It was the biggest gain since December 2010. The data set an optimistic tone ahead of Friday's more comprehensive government report on the labor market and some economists raised their forecasts.

The weak labor market remains one of the biggest hurdles for the economic recovery. Friday's non-farm payrolls report, which includes both public- and private-sector employment, is expected to show a rise in overall non-farm payrolls of 122,000 this month. While economists often refer to the ADP report to fine-tune their expectations for the payrolls numbers, ADP's track record as a predictor has varied.

Deutsche Bank raised its forecast for Friday to 150,000 from 125,000, while Capital Economics increased its expectations to 140,000 from 100,000. Keep in mind that the ADP number has a tendency to overshoot in November and so do not get too excited before Friday.

The data helped lift U.S. stocks, but investors were more focused on the moves from the central banks. The three major equity indexes rose more than 3 percent, with the Dow up more than 400 points.

Meanwhile, a separate report showed the number of planned layoffs at U.S. companies edged down marginally in November, though job cuts for the year so far have surpassed 2010's total. On the housing front, the National Association of Realtors Pending Home Sales Index jumped 10.4 percent to 93.3 from 84.5 the month before. It was the largest monthly gain since November 2010.

However, that report was tempered as separate data showed applications for U.S. home mortgages slumped for the third week in a row last week, hit by a drop in demand for refinancing.

Business activity in the Midwest grew faster than expected in November, adding to expectations that national manufacturing data should show an uptick in growth when it is released on Thursday. Separate data showed the rebound in non-farm productivity growth was not as strong as previously estimated in the third quarter, while wages declined for two straight quarters.