Dow soars nearly 400, but all 3 major U.S. indexes end January lower

January 31 23:11 2016

The Dow rose nearly 400 points Friday to cap a turbulent month on an upbeat note after a surprise interest rate cut by the Bank of Japan and despite a report showing weak fourth-quarter U.S. growth. It has been a dreary month for stocks. The Dow Jones industrial average, kicked off the final trading day of the month down 7.78% for 2016 and it’s still in correction mode, or down more than 10% from its peak. A weak January does not bode well for stocks for the remainder of the year, as Wall Street often says that, “As January goes, so goes the market” for the rest of the year.”

But January — which has seen stocks battered amid a continued slide in oil prices, fears of a global slowdown due to China’s slowing growth and uncertainty about interest rate policy in the U.S. — ended with what looks like¬† another “relief rally.” Whether this bounce lasts remains to be seen, as prior bounces for the blue-chip Dow have faltered amid fresh selling sparked by a new diet of negative headlines. A weaker-than-expected reading on fourth-quarter 2015 economic growth, or GDP, didn’t deter investors. Growth came in at an anemic 0.7%, below the 0.8% forecast, the latest sign that the U.S. economy has been negatively impacted by market turmoil, growth fears and less support from the U.S. Federal Reserve. Fourth-quarter GDP trailed the 2% growth the economy delivered in the third quarter of 2015.

The big headline Friday was a move by Japan’s central bank to push interest rates into negative territory in an effort to boost economic activity, combat dangerously low inflation and spur more bank lending. The BoJ followed the policy path of the European Central Bank, in pushing the rate for deposits down to -0.1% for current financial firms that have cash deposited at the BoJ. A negative interest rate means depositors pay the bank to keep their money at the bank. In normal times, banks pay depositors interest on their cash deposits. “The BoJ decision boosted risk sentiment and has fueled expectations for additional easing by other central banks, such as the ECB,” Nikolaos Sgouropoulos of Barclays told clients in a note before the opening bell. ECB chief Mario Draghi recently said the eurozone central bank would consider injecting more stimulus into its system at its March meeting to jump start growth and combat low inflation.

U.S. stocks also got help from advancing crude prices, as a barrel of U.S. produced touched $33.50, after a gain of 28 cents or 0.8%. A strong manufacturing reading in the Chicago area also boosted investor sentiment. The BoJ’s move pushed the value of the yen down vs. the dollar and sparked a rally in world stock markets, with Japan’s Nikkei 225 closing 2.8% higher, shares in Hong Kong gaining 2.5% and a 3.1% advance in mainland China’s Shanghai composite index. Shares also got a boost in Europe, where the broad Stoxx Europe 600 rallied 1.3%.

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