Stocks surged on Thursday after the U.S. Federal Reserve responded to sluggish economic reports, announcing another round of bold stimulus measures designed to drive economic activity upward and put downward pressure on unemployment.
The Dow Jones industrial average closed at 13,539.86, up 206.51 points or 1.6 per cent. The broader S&P 500 closed at 1459.99 or 23.43 points or 1.6 per cent – hitting its highest level since the end of 2007. In Canada, the S&P/TSX composite index closed at 12,360.16, up 127.54 points or 1 per cent.
Major North American indexes had been relatively flat before the Fed made its announcement in the early afternoon, and took time to warm up to the implications of central bank policy.
In its statement, the Fed said it would buy $40-billion (U.S.) of mortgage debt every month – a variation of the quantitative easing program that observers had been hoping for. It also extended its commitment to hold its key interest rate at exceptionally low levels through mid-2015. Previously, the commitment had been through late 2014.
“In the face of continued disappointments in the pace of growth and job creation, the FOMC brought out the big guns, or at least whatever big guns they had left,” said Avery Shenfeld, chief economist at CIBC World Markets, in a note.
The Fed’s move overshadowed a disappointing reading on U.S. initial jobless claims for the period ended last week. Claims rose to 382,000, ahead of the 370,000 that economists had been expecting.
The stock market gains were broad, lifting all 30 members of the Dow. But economically sensitive stocks received the biggest lift: Bank of America Corp. rose 4.8 per cent, Alcoa Inc. rose 3 per cent and Home Depot Inc. rose 2.2 per cent.
Canada’s benchmark index got a big boost from rallying gold prices. Gold jumped to $1,772.10 an ounce, up $38.40, marking its biggest one-day move in more than three months. Among producers, Barrick Gold Corp. rose 4.1 per cent and Goldcorp Inc. rose 4.7 per cent.
Dollarama Inc. rose 4.4 per cent after it reported a 32 per cent gain in its net earnings on a per share basis. Earnings rose to 66 cents (Canadian) a share from 50 cents last year.
Empire Co. Ltd. rose 0.8 per cent after the owner of Sobeys grocery stores reported earnings of $1.60 a share, up from $1.31 a share last year.