Market Ends Week at More Than Two-Year High

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Stocks closed higher Friday, helped by encouraging economic news and progress on a compromise in Washington to extend the Bush-era tax cuts.

The blue-chip Dow Jones Industrial Average ($INDU) gained 40 points, or 0.4%, to close at 11,410. The broader S&P 500 ($INX) rose 7 points, or 0.6%, to 1,240. The tech-heavy Nasdaq Composite ($COMX) added 21, or 0.8%, to finish at 2,638.

A surprise jump in consumer sentiment to a six-month high helped stocks post further gains Friday. Consumer sentiment unexpectedly jumped 2.6 points to 74.2 in December, while the current economic conditions component rose to its highest level in about three years, according to the Thomson Reuters/University of Michigan survey.

Economists surveyed by Bloomberg forecast sentiment to rise to 72 in December from 71.6 in November. The index was 67.7 in October and 68.2 in September. At the start of the recent recession in December 2007, it was 88.9.

Also helping equities was a surprise drop in the trade deficit. A jump in exports and a dip in imports helped the U.S. trade deficit to unexpectedly plunge 13.2% in October to $38.7 billion -- the lowest level since January, the U.S. Commerce Department said Friday. Economists surveyed by Bloomberg, on average, expected the trade deficit to remain unchanged in October at $44.0 billion, after a revised $2.3 billion drop to $44.6 billion in September.

The S&P 500 is up more than 11% on the year and sits at a level not seen in more than two years. And yet the huge selloff in the bond market this week and the suddenly resurgent dollar failed to weigh on equities, says Kenny Polcari, managing director at interdealer broker ICAP Corporates.

"Bonds are getting crushed, the dollar's going up," Polcari says. "You would have thought that the market would have pulled back a little bit." But the Federal Reserve's second round of quantitative easing appears to be working -- at least when it comes to reflating assets like stocks and commodities, he says.

For Polcari's view from the floor of the New York Stock Exchange (NYX), see the video above.
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