Stocks Rebound Sharply On Bargain Hunting, Higher Oil Prices - U.S. Commentary

(RTTNews) - After initially showing a lack of direction, stocks moved sharply higher over the course of the trading day on Friday. The gains on the day came on the heels of a recent pullback, with the major averages snapping a five-session losing streak.

The major averages saw further upside going into the close, ending the session near their best levels of the day. The Dow surged up 190.86 points or 1.1 percent to 17,511.57, the Nasdaq soared 63.56 points or 1.4 percent to 4,634.38 and the S&P 500 jumped 26.75 points or 1.3 percent to 2,019.42.

Despite the strong gains on the day, the major averages all moved lower for the week. The Nasdaq tumbled by 1.5 percent, while the Dow and the S&P 500 slid by 1.3 percent and 1.2 percent, respectively.

Bargain hunting contributed to the rebound on Wall Street, with the major averages bouncing off their lowest closing levels in about a month.

The markets also benefited from a sharp increase by the price of crude oil, with crude for February delivery jumping $2.44 to $48.69 a barrel.

Prices were boosted when the International Energy Agency said the recent collapse in oil prices is expected to curtail non-OPEC oil production this year.

"A price recovery--barring any major disruption--may not be imminent, but signs are mounting that the tide will turn," the IEA said as it slashed its forecast for an increase in non-OPEC oil supply this year by 350,000 barrels a day.

Meanwhile, traders also continued to digest the Swiss National Bank's surprise decision to remove its currency cap as well as another batch of U.S. economic data.

The Labor Department released a report this morning showing that consumer prices saw the biggest decrease in six years in December amid another sharp drop in energy prices.

The report said the consumer price index fell by 0.4 percent in December, reflecting the biggest monthly decrease since December of 2008.

Excluding food and energy prices, the Labor Department said the core consumer price index came in unchanged in December after edging up by 0.1 percent in November.

A separate report from the Federal Reserve showed a modest pullback in industrial production in December, while the University of Michigan said its consumer sentiment index jumped to an eleven-year high in January.

Sector News

Reflecting the sharp jump by the price of crude oil, oil service stocks turned in some of the market's best performances on the day. The Philadelphia Oil Service Index surged up by 4.4 percent after ending the previous session at its worst closing level in over three years.

Other energy stocks also moved notably higher, with the NYSE Arca Natural Gas Index and the NYSE Arca Oil & Gas Index jumping by 3.7 percent and 3.1 percent, respectively.

Considerable strength was also visible among gold stocks, as reflected by the 3.2 percent gain posted by the NYSE Arca Gold Bugs Index. With the gain, the index reached its best closing level in three months.

The strength among gold stocks came amid a notable increase by the price of the precious metal, with gold for February delivery climbing $12.10 to $1,276.90 an ounce.

Steel, biotechnology, healthcare, and software stocks also saw significant strength on the day, moving notably higher along with most of the other major sectors.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly lower during trading on Friday. Japan's Nikkei 225 Index tumbled by 1.4 percent, while Hong Kong's Hang Seng Index dropped by 1 percent.

Meanwhile, the major European markets moved to the upside on the day. While the U.K.'s FTSE 100 Index advanced by 0.8 percent, the French CAC 40 Index and the German DAX Index jumped by 1.3 percent and 1.4 percent, respectively.

In the bond market, treasuries moved to the downside, giving back some ground following recent strength. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 4 basis points to 1.815 percent.

Looking Ahead

Following the long holiday weekend, traders are likely to focus on the outcome of the European Central Bank's monetary policy meeting next Thursday.

Many analysts expect the ECB to expand its quantitative easing program, particularly after this week's surprise move by the Swiss National Bank.

U.S. housing data may also attract attention, as traders will be presented with reports on homebuilder confidence, housing starts, and existing home sales.

On the earnings front, American Express (AXP), General Electric (GE), IBM (IBM), Johnson & Johnson (JNJ), McDonald's (MCD), Morgan Stanley (MS), and United Continental (UAL) are among the slew of companies due to report their quarterly results next week.

In addition to all the above catalysts, President Barack Obama is scheduled to deliver his State of the Union address next Tuesday.