Stocks on Wednesday turned in their biggest one-day gains of the year as investors bet that central banks stand ready to stimulate the global economy if conditions continue to deteriorate.
The Dow Jones industrial average closed at 12,414.79, up 286.84 points, or 2.4 per cent. The broader S&P 500 closed at 1315.13, up 29.63 points, or 2.3 per cent – marking its biggest move since mid-December. In Canada, the S&P/TSX composite index closed at 11,633.40, up 125.69 points, or 1.1 per cent.
There was little concrete evidence that major central banks were drawing up imminent plans to give the economy a boost, following a series of disappointing economic reports from Europe and the United States in recent weeks.
However, suggestions that doors are open to more stimulus were enough for investors. The European Central Bank’s Mario Draghi left Europe’s key interest rate unchanged on Wednesday, but said he was ready to act if the region’s growth outlook dims.
Federal Reserve official (and head of the Reserve Bank of Atlanta) Dennis Lockhart said that extending the Fed’s so-called Operation Twist – a stimulative move that involves selling short-term bonds and buying longer-term bonds – was still an option.
Markets have rallied in previous years on the expectations of central bank stimulus, particularly when the Federal Reserve has introduced quantitative easing – printing money to buy U.S. government bonds to hold down borrowing costs. That said, previous efforts have had little lasting impact on the U.S. economy, which is struggling to generate meaningful growth or job gains.
Meanwhile, the Federal Reserve released its Beige Book, calming concerns that the economy is in great danger: The Fed continued to describe economic growth as “moderate.”
In Europe, the gains on Wednesday were also big. The U.K.’s FTSE 100 rose 2.4 per cent and Germany’s DAX index rose 2.1 per cent.
In the United States, the market gains were broad, lifting about 98 per cent of the stocks within the S&P 500. Among some of the standout moves, Bank of America Corp. rose 7.6 per cent, while Cisco Systems Inc. and General Electric Co. rose 3.5 per cent each.
In Canada, Barrick Gold Corp. fell 4.97 per cent – curiously, after replacing its chief executive for disappointing shareholders. Gold performed well, though, on expectations that Fed stimulus will lead to inflation down the road: Gold rose to $1,634.20 an ounce, up $17.30.
Laurentian Bank of Canada rose 2.7 per cent after striking a $415-million (Canadian) deal to buy AGF Management Ltd.’s trust arm. AGF shares rose 4.4 per cent.
Crude oil rose 73 cents, to $85.02 a barrel. Among energy producers, Suncor Energy Inc. rose 3.3 per cent and Canadian Natural Resources Ltd. rose 1.1 per cent.