Stocks extended a rally that started in September to close at two-year highs on Thursday, a day after the Federal Reserve unveiled a plan to boost the economy.
A bullish read on consumers also boosted shares as many retailers posted stronger-than-expected sales for October. The S&P retail index gained 1.7 percent and apparel maker Gap Inc. added 6.1 percent to $20.43.
Confounding expectations of a sell-off after the Fed's asset-buying plan, investors instead focused on the flood of cheap money expected to flow into the banking sector from the U.S. central bank's plan to buy more Treasury debt.
"The Fed news is really driving up commodity-related companies and spreading to other areas of the economy," said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia. "It's really a perfect storm of good news."
The S&P 500 index is up about 16 percent since the start of September as investors bet that Fed action and Republican gains in the U.S. midterm election would create a better environment for corporate profits. The Dow index closed at its highest since the collapse of Lehman Brothers in September 2008.
The CBOE Volatility Index, Wall Street's so-called fear gauge, fell 5.3 percent. The VIX usually moves inversely with the S&P 500, tracking options prices that investors are willing to pay as a protection on movement of the underlying stocks.
The VIX's decline suggested investors were confident the Fed's efforts will support market gains.
"Given the political changes, the monetary policy changes, as well as good seasonal indicators, the market could trend higher through December, said Eric Teal, chief investment officer at First Citizens Bancshares in Raleigh, North Caroline, which manages about $5 billion.”We could move up another 5 percent even from these levels."
The Fed's plan to buy $600 billion in Treasuries lifted riskier assets, as commodity-related stocks rose on expectations of an increase in global demand.
An index of commodity prices rose 2.4 percent and hit its highest level in more than two years while the U.S. dollar fell.
Mining company Freeport McMoRan Copper and Gold Inc. jumped 7 percent to $103.89, a price not seen since 2008. The S&P materials index was up 3.3 percent, and Dow component Exxon Mobil Corp. added 2.1 percent to $69.38.
Almost all sectors benefited in the rally, with five stocks rising for every one that fell on the New York Stock Exchange and more than three rising for every one that fell on the Nasdaq.
The Dow Jones Industrial Average closed up 219.71 points, or 1.96 percent, at 11,434.84. The Standard & Poor's 500 Index was up 23.09 points, or 1.93 percent, at 1,221.05. The Nasdaq Composite Index was up 37.07 points, or 1.46 percent, at 2,577.34.
Retail stocks surged after October's same-store sales data, which appeared to bode well for the upcoming holiday shopping season. Target Corp. rose 1.5 percent to $54.76 while Macy's Inc. advanced 6.6 percent to $25.56.
In what could be seen as conflicting technical signals, the S&P 500 daily moving average convergence-divergence chart triggered a buy signal for the first time since October 18, but its relative strength index, or RSI, jumped near 76. An RSI reading above 70 indicates an overbought level.
While the VIX was lower, options implied volatility on exchange-traded funds that track the S&P and Nasdaq instantly dropped near last month's lows following the Fed announcement, according to a Jefferies Equity Derivatives note. Implied volatility on November expiring options fell 2.7 percent while December expiration options fell 1.8 percent.
Investors shrugged off data that showed a weekly rise in new claims for unemployment benefits. Other data showed unit labor costs fell in the third quarter and nonfarm productivity rebounded at a much stronger-than-expected 1.9 percent annual rate in the third quarter.
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