Dow ends up 2.9%: Stocks rally on euro deal, U.S. news
NEW YORK -- Stocks around the world shot up sharply Thursday as investors went on a risk-taking binge after Europe finally sealed a long-awaited deal to stem its debt crisis.
The Dow Jones industrial average rocketed up 340 points, a gain of 2.9%, as the S&P 500 closed up 3.4% and the Nasdaq gained 3.3%.
The rally puts the Dow on track for its best monthly point gain ever. It put the broad Standard & Poor's 500 stock index back in the black for the year, joining the Dow and tech-heavy Nasdaq composite stock index.
The plan was cheered by Wall Street because it greatly reduces the odds of a financial meltdown in Europe that could spread and infect other economies, such as the U.S. and China. And it bodes well for risky financial assets like stocks going forward, analysts say.
Although Europe's plan isn't perfect and much of its success will depend on its implementation and small details, it sent a powerful message to markets that policy makers in Europe would do what it takes to avoid financial contagion. And that adds up to a huge psychological lift for markets.
"We have seen an extraordinary shift from negativity to optimism," says Andy Busch, global currency and public policy strategist at BMO Capital.
Financial markets have been held hostage to the negotiations in the eurozone for weeks, with stock prices moving up and down sharply on news headlines out of Europe. Investors fearing a worst-case outcome to the debt crisis were unwilling to put money to work in stocks because they didn't want to risk big losses if things ended badly.
That uncertainty disappeared quickly Thursday when European leaders announced a three-pronged plan that Wall Street was hoping for. The mere fact that a deal had been struck did away with a lot of the uncertainty that had kept investors on the sidelines.
"What's the significance of the deal? Three words: It's a plan," says Brian Belski, chief investment strategist at Oppenheimer. "It is significant in that we have dotted the I's and crossed the T's. We no longer have to be worried about what is coming."
Investors — at least for now — don't have to worry about a financial collapse like the one in 2008, after Wall Street investment bank Lehman Bros. filed for bankruptcy, sparking a global financial crisis.
"Financial Armageddon seems to have been taken off the table," says Mark Luschini, chief investment strategist at Janney Montgomery Scott.
Less worry about a financial meltdown could spur even more risk-taking if headlines out of Europe remain positive.
"One thing investors want is for the European stuff to get off the front pages of the newspapers," and this deal could do that, says Ken Fisher, founder and CEO of Fisher Investments.
For the most part, Europe delivered on its promise to come up with a "comprehensive" solution that would allow it to stabilize Greece and its banks, as well as figure out a way to get the most firepower out of a bailout fund needed to keep the financial system in Europe from freezing up.
The most bullish aspect of the deal is that it makes it less likely that Europe's financial problems will spread around the world like a flu.
"Bottom line, it wasn't about solving Europe's problems, it was about containing the problem, and this plan contains it. And that is a victory," says Busch at BMO Capital.
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