Stocks Rally On Surprise Bank Of Japan Move, Earnings News - U.S. Commentary

(RTTNews) - With traders reacting positively to an unexpected monetary policy move by the Bank of Japan, stocks moved sharply higher during trading on Friday. The gains on the day helped the major averages more than offset the steep drop seen on Wednesday.

The major averages saw further upside going into the close, ending the session near their best levels of the day. The Dow soared 396.66 points or 2.5 percent to 16,466.30, the Nasdaq jumped 107.28 points or 2.4 percent to 4,613.95 and the S&P 500 surged up 46.88 points or 2.5 percent to 1,940.24.

As a result of the strong upward move on the day, the major averages all closed higher for the week. While the Nasdaq rose by 0.5 percent, the Dow and the S&P 500 jumped by 2.3 percent and 1.7 percent, respectively.

The rally on Wall Street was partly in reaction to the Bank of Japan's surprise decision to introduce negative interest rates.

The bank decided by a 5 to 4 majority vote to apply a negative 0.1 percent interest rate on current accounts financial institutions maintain with the bank, effective February 16th.

The move is expected to boost the struggling Japanese economy by encouraging banks to lend more and inspiring consumers to spend rather than save.

Analysts at Danske Bank said, "We expect the decision to boost global risk sentiment in the coming days but crucially we do not see this as a trigger of a prolonged global risk rally."

Buying interest was also generated by some of the latest earnings news, with Microsoft (MSFT) moving notably higher after reporting its fiscal second quarter results.

After the close of trading on Thursday, Microsoft reported second quarter adjusted earnings that were ahead of expectations, although its revenues trailed estimates.

Electronics giant Sony (SNE) also posted a standout gain after reporting better than expected fiscal third quarter earnings.

Meanwhile, shares of Amazon (AMZN) came under pressure after the online retailer reported below-consensus earnings and sales for its fourth quarter.

Traders were also digesting the latest U.S. economic news, including a Commerce Department report showing a notable slowdown in GDP growth in the fourth quarter.

The report said real GDP increased by 0.7 percent in the fourth quarter compared to the 2.0 percent growth reported for the third quarter. Economists had expected GDP to rise by about 0.8 percent.

A separate report from the University of Michigan unexpectedly showed a deterioration in consumer sentiment in January, while MNI Indicators reported a substantial rebound in Chicago-area business activity.

Sector News

Most of the major sectors showed strong moves to the upside on the day, reflecting broad based buying interest on Wall Street.

Oil service stocks posted particularly strong gains, driving the Philadelphia Oil Service Index up by 5.1 percent. The index climbed further off its recent lows to reach its best closing level in almost a month.

The strength among oil service stocks came amid an increase by the price of crude oil, with crude for March delivery climbing $0.40 to $33.62 a barrel.

Positive earnings news also contributed to substantial strength in the electronic storage sector, with the NYSE Arca Disk Drive Index surging up by 4.7 percent.

Seagate Technology (STX) and Western Digital (WDC) both posted standout gains after reporting quarterly earnings that exceeded analyst estimates.

Considerable strength also emerged among semiconductor stocks, which moved notably higher along with airline, steel, housing, and trucking stocks.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region saw considerable strength during trading on Friday. Japan's Nikkei 225 Index soared by 2.8 percent, while Hong Kong's Hang Seng Index surged up by 2.5 percent.

The major European markets also showed strong moves upside on the day. While the German DAX Index shot up by 1.6 percent, the French CAC 40 Index and the U.K.'s FTSE 100 Index jumped by 2.2 percent and 2.6 percent, respectively.

In the bond market, treasuries moved notably higher on the heels of the surprise move by the Bank of Japan. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, slid 5.4 basis points to 1.931 percent.

Looking Ahead

Next week's trading could be driven by reaction to some key U.S. economic data, including the Labor Department's monthly jobs report due out next Friday.

Ahead of the jobs report, traders will be presented with reports on manufacturing and service sector activity, personal income and spending, and labor productivity and costs.

Traders are also likely to keep an eye on the Iowa caucuses on Monday, which mark the first presidential nominating contests of the 2016 election season.

On the earnings front, Dow Chemical (Dow), Exxon Mobil (XOM), General Motors (GM), Pfizer (PFE), UPS (UPS), and Yahoo (YHOO) are among the companies due to report their quarterly results next week.