U.S. stocks closed more than 2 percent higher Friday, the last trading day of January, after the Bank of Japan unexpectedly adopted a negative interest rate policy for the first time. Encouraging earnings reports, a better-than-expected Chicago PMI report and some stabilization in oil prices also helped push equities higher.
The major averages still posted their worst January in at least seven years. On a monthly basis, the Nasdaq composite fell 7.86 percent for its worst month since May 2010. However, Friday's sharp gains pushed the three indexes into positive territory for the week.
"I think the BOJ got it going," said Jeremy Klein, chief market strategist at FBN Securities. While he was skeptical of the actual benefit of the negative rate policy to the economy, he said "it signals they are basically walking their talk."
Stocks rallied into the close, with the Dow Jones industrial average ending up more than 390 points. The S&P 500 surged nearly 2.5 percent to close within 10 percent of its 52-week intraday high, out of correction territory. Information technology gained more than 3.5 percent to lead all 10 sectors higher.
"I think investors were concerned about missing a rally driven by reduced uncertainty about oil, China and central banks," said Doug Cote, chief market strategist at Voya Investment Management.
The major U.S. averages extended gains after the Chicago PMI showed 55.6 in January, topping expectations of a 45.0 print and above December's 42.9 read.
"This big uptick in the PMI — there's relief that we won't be dipping below 40 on the ISM (manufacturing) Monday," Klein said.
Traders also attributed some of the gains in stocks to short covering and month-end buying.
"I think it's an important inflection point here," said Art Hogan, chief market strategist at Wunderlich Securities. If "we break the correlation with energy and start focusing on earnings, it's a much healthier environment for investors."
U.S. crude oil futures settled up 40 cents, or 1.20 percent, at $33.62 a barrel, for its first four-day win streak since April.
Oil held higher after Baker Hughes said the U.S. oil rig count fell by 12, marking a sixth-straight week of declines. Earlier, oil briefly pared gains to turn lower. An Iranian official said the country would not join an immediate OPEC production cut, Dow Jones reported.
Visa jumped 7.4 percent and Goldman Sachs gained nearly 2.9 percent as the top two contributors to gains in the Dow as all constituents closed higher.
The Nasdaq composite also ended more than 2 percent higher, but underperformed as Amazon closed down 7.6 percent. Apple closed up more than 3 percent. The iShares Nasdaq Biotechnology ETF (IBB) turned higher to close up about 1.4 percent, but still fell more than 20 percent for the month, its worst going back to its inception in 2001.
Global equities climbed after the Bank of Japan's surprise announcement, with the Nikkei reversing mild losses to close up 2.8 percent. The Shanghai composite closed 3.09 percent higher. European stocks ended more than 1 percent higher, with the STOXX 600 up more than 2 percent.
"That (BOJ move) actually comes as a shock. I expected them to be dovish, but negative interest rates was a shock," said John Caruso, senior market strategist at RJO Futures.
"Anytime central banks push interest rates lower, stocks applaud it," he said.
Treasury yields edged lower to hit multi-month lows, with the at 0.78 percent and the 10-year yield near 1.93 percent.
"I think much of the rally (in bonds) can get reversed with the stock market doing better... and stabilization in oil," said Bryce Doty, senior fixed income manager with Sit Investment Associates.
The U.S. dollar climbed more than 1 percent against major world currencies, with the euro near $1.083 and the yen at 121.06 yen against the greenback.
Overnight, the Bank of Japan announced a negative interest rate policy. The move comes after the Federal Reserve kept rates unchanged at its meeting this week and noted the central bank is "closely monitoring" global economic and financial developments and assessing their implications for their outlook.
Speaking last week, European Central Bank President Mario Draghi raised hopes of stimulus as soon as the March meeting.
"At the end of the day, I don't think it's a long-term fix to what we have going on," said Tom Siomades, head of Hartford Funds Investment Consulting Group.
"I'm disappointed that we started the year like we did, how we reacted so strongly to China like we did," he said. "I'm still optimistic, but a lot of it hinges on Fed policy and a better job of negotiating and (communicating) what their policy is."
Dallas Fed President Robert Kaplan, an alternate member of the FOMC, said in an interview with Reuters Friday that the central bank needs more time to weigh the global risks to the U.S. economy. He also said the Bank of Japan stimulus will clearly affect the dollar and that policymakers are "mindful of that."
San Francisco Federal Reserve Bank President John Williams said on Friday the central bank is on a path to gradually raise interest rates. He is optimistic that the U.S. can weather the storms from abroad and that the U.S. economy is "doing well," Reuters reported.