Energy stocks lead a broad rally as the price of oil soars
U.S. stocks made their biggest gain in more than a month on Friday as oil prices surged, lifting energy stocks. Tech stocks also climbed as Apple shares had their day since August.
Energy companies soared after the price of U.S. crude jumped 9 percent. Oil prices reached their lowest level in 12 years earlier this week, but they jumped Thursday and Friday.
The Dow Jones industrial average rose 210.83 points, or 1.3 percent, to 16,093.51. The Standard & Poor's 500 index had its best day since early December, gaining 37.91 points, or 2 percent, to 1,906.90. The Nasdaq composite index made its biggest gain since September, adding 119.12 points, or 2.7 percent, to 4,591.18.
The markets rose this week for the first time in four weeks as the prospect of economic stimulus in Europe helped put investors in a buying mood, following a dismal beginning to the new year. In Japan, the Nikkei 225 index had its best day in four months as investors hoped the Bank of Japan will also step in.
This week's gains didn't look likely on Wednesday, when stocks nosedived along with energy prices. At one point the Dow tumbled 565 points. Since the first two weeks of this year were its worst opening to a year in history.
While the two-day surge may have investors hoping the worst is behind them, Jim Paulsen, chief investment strategist for Wells Capital Management, said he still thinks the S&P 500 will slide to around 1,800 before a real recovery comes. That's below even the darkest moments from Wednesday's swoon.
"It's going to continue to be a struggle," he said. "Everyone will be convinced we're heading for recession, everyone will be convinced we're in a bear market."
There was little trace of that view on Friday. U.S. crude rose $2.66 to $32.19 a barrel in New York. Brent crude, a benchmark for international oils, rose $2.93, or 10 percent, to $32.18 a barrel in London. U.S. oil climbed 21 percent over the last two days and it has recovered about half its losses from earlier in the year.
Pipeline operator Kinder Morgan rose $1.46, or 10.5 percent, to $15.34 after it jumped 16 percent Thursday. Pipeline company Williams Cos. added $3.70, or 23.1 percent, to $19.74. Devon Energy gained $1.45, or 6 percent, to $25.63.
Goldman Sachs analyst Jeffrey Currie said energy prices have fallen so far that the industry is making real cuts in production. "We are now at a price level that is creating real fundamental change," he said.
Low energy prices are good for many industries and consumers, but investors have gotten nervous that falling energy prices foretell a big slowdown in the global economy. Currie said it will take a long time for the market to recover from the huge decline in energy prices. But he said prices are down because of a supply glut, not because demand is collapsing.
Shares of Apple, which have lost about a quarter of their value in the last six months, rose $5.12, or 5.3 percent, to $101.42. Microsoft gained $1.81, or 4 percent, to $52.29. Facebook added $3.78, or 4 percent, to $97.94 and Alphabet added $18.79, or 2.6 percent, to $745.46.
On Friday European Central Bank head Mario Draghi said the bank has a lot of options to boost inflation and is determined and willing to act. On Thursday Draghi suggested the ECB will consider more stimulus action at its next meeting in March.
France's CAC 40 added 3.1 percent and Germany's DAX rose 2 percent. Britain's FTSE 100 climbed 2.2 percent.
Japan's Nikkei 225 index rose 5.9 percent. Earlier this week the index entered a bear market, meaning it was down 20 percent from a recent peak. South Korea's Kospi gained 2.1 percent and Hong Kong's Hang Seng added 2.9 percent. The Shanghai Composite Index in mainland China climbed 1.3 percent.
Telecommunications and utilities stocks also rose and turned positive for the year. They're both up 1 percent while the other eight industrial sectors in the S&P 500 are much lower in 2016. Last year the S&P 500 utility index fell 8 percent and telecom stocks fell 2 percent.
Paulsen, chief investment strategist for Wells Capital Management, said investors turn to utilities and telecom stocks when the market gets rough. Companies in those industries pay relatively large dividends, which means their prices are more stable and the stocks behave almost like bonds.
"They are just the most conservative sector of the stock market," he said.
Credit card company American Express gave a very negative outlook for 2016 and 2017. The company expects its earnings per share to fall this year even though it's selling credit card accounts tied a co-branded credit card it offers with Costco. That relationship is ending.
The stock fell $7.58, or 12.1 percent, to $55.06, its biggest loss in almost seven years. American Express is a Dow component, and that loss caused the Dow to lag the other major U.S. indexes.
Gold and copper producer Freeport-McMoRan tumbled 39 cents, or 9.1 percent, to $3.94. Its shares have dropped 42 percent in 2016 after huge plunges the previous two years. The company has struggled as metals prices have fallen, and its decision a few years ago to invest in oil and gas came shortly before those prices also plunged.
The largest oilfield services company in the world said it cut 10,000 jobs in the fourth quarter after eliminating some 20,000 earlier in 2015. However Schlumberger said it will buy back $10 billion in stock. Its share price has fallen 25 percent over the last year. The stock rose $3.7, or 6.1 percent, to $65.20.
In other energy trading, wholesale gas added 5.3 cents, or 5.1 percent, to $1.084 a gallon. Heating oil picked up 9.8 cents, or 10.9 percent, to 99.6 cents a gallon. Natural gas inched up to $2.139 per 1,000 cubic feet.
U.S. government bond prices fell. The yield on the 10-year Treasury note rose to 2.05 percent from 2.03 percent a day earlier.
The price of gold fell $1.90 to $1,096.30 an ounce and silver fell 3.7 cents to $14.06 an ounce. Copper rose 0.6 cents to $2.003 a pound.
The dollar rose to 118.78 yen from 117.50 on Thursday. The euro weakened on the prospect of further ECB stimulus. It fell to $1.0791 from $1.0875.
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