Financial sector stocks leapt to their highest levels in a year-and-a-half during a week that saw equity investors delighted by the Federal Reserve’s decision to bolster the US economy with fresh stimulus measures.
The S&P 500 financials index climbed 3.8 per cent over the week after the US central bank said it would expand its bond-buying operations.
Bank stocks were among the most receptive to the Fed decision, which came on Thursday, to buy an additional $40bn worth of mortgage-backed securities a month.
Analysts said the impact of the move would be to lower mortgage rates, provide a boost to the recovering housing market and in turn help bank revenues and credit quality.
Shares in Bank of America gained 8.5 per cent to $9.55 as it ranked among the week’s top performing bank stocks. Citigroup climbed 8.5 per cent to $34.79 and JPMorgan Chase rose 5.8 per cent to $41.57.
Bank of America Merrill Lynch researchers said the Fed’s announcement went beyond the dovish expectations of most investors.
Overall, the benchmark S&P 500 index reached its highest level in nearly five years. The index was 1.9 per cent higher to 1,465.77 for the week, and has gained 16.6 per cent since the start of the year.
Much of that advance has come in recent weeks – with the index up 4.2 per cent since the start of September – on the back of monetary action from both the European Central Bank last week and the Federal Reserve this week.
Analysts at Barclays said: “With the global growth party threatening to dissolve prematurely, policymakers have refilled the punchbowl and investors are boogying once more.”
But others cautioned that the Fed’s action may have only a temporary influence on the overall health of stocks.
Jim Paulsen, chief investment strategist at Wells Capital Management, said: “It is not so much that the Fed announcement will hurt the economy in the future as it is the Fed missed a great opportunity to treat what really needs some medicine – economic confidence.”
He added: “Rather than bring another shock and awe to a recovery no longer in crisis, the Fed would have been more helpful by simply looking and sounding confident in the future and standing down.”
The Nasdaq Composite Index gained 1.5 per cent over the week to 3,183.95.
Shares in Apple touched a record high as the iPhone and iPad maker continued to add to its gains for the year after unveiling the latest versions of some of its popular consumer gadgets.
Analysts said that although the additions and changes to its new iPhone5 did not have the usual ‘surprise’ factor, the company should expand its market share of the smartphone business and see large volumes of orders.
Apple was 1.6 per cent higher at $691.28, just outpacing the broader S&P 500 information technology sector for the week.
Shares in Facebook, the social networking company, rose 15.9 per cent to $22. The shares recorded their best week as a public company, but remain 42.4 per cent below their debut price of $38.
Materials stocks saw strong gains as investors piled into riskier, more cyclical sectors after the Fed’s announcement. The S&P 500 materials index rose 3.8 per cent.
Among the top performers in the sector, Alpha Natural Resources climbed 23.9 per cent to $8.55. Close behind was Cliffs Natural Resources, which rose 14.1 per cent to $45.55.
The Dow Jones Industrial Average recorded a weekly rise of 2.2 per cent to 13,593.37. Shares in UnitedHealth Group fell 1.4 per cent to $54.25. The healthcare provider is set to replace Kraft, the food company, in the Dow Jones Industrial Average later this month.
Kraft, which plans to split its company in two, fell 0.2 per cent to $39.93.
Ahead of its quarterly earnings report next week, shares in Nike slid 2.7 per cent to $96.64. Analysts at Canaccord Genuity said that the company’s revenues in the quarter most likely benefited from the London Olympics and the European football championships. But they warned that the sportswear group might see some overhang due to a slowdown in China and Europe.
The broader equity gains this week took place despite disappointing data releases. An employment report released midweek showed that new claims for unemployment benefits came in higher than expected.
Meanwhile, economic data released on Friday showed that industrial production in the US contracted by 1.2 per cent in August, the most since March 2009. Separately, consumer inflation data showed that household prices increased by the most in three years last month.
Get alerts on US when a new story is published