Why the Dow Surged to Its Best Week in 2012

It was a much-needed great week for the Dow Jones Industrial Average (INDEX: ^DJI  ) , which rose more than 400 points and logged its best week of the year. Positive news from Europe and China were the main catalysts behind the week's moves.

Wednesday was the best day for the Dow this week, which rose 2.4% after comments from European Central Bank President Mario Draghi that Europe would be willing to cut interest rates if it's deemed necessary. On Friday, investors got some further good news from the Eurozone, when it was revealed that Spain was expected to seek a bailout for its struggling banks, which could help end some uncertainty looming over the markets the past few weeks.

Investors also got good news from China this week, which surprised many with an announcement Thursday that it will lower its interest rates by 25 basis points for the first time since 2008. The rate cut shows that the Chinese government is concerned about slowing growth in the country and willing to take steps to stimulate the world's second biggest economy.

Here's how the three major U.S. indexes fared on the week:

Index

Change This Week

Ending Value

Dow Jones Industrial Average +435.63 [3.59%] 12,554.20
Nasdaq +110.94 [4.04%] 2,858.42
S&P 500 +47.62 [3.73%] 1,325.66

Turning to individual stocks, Home Depot (NYSE: HD  ) was the Dow's biggest gainer this week, rising a whopping 9.2%. The company announced that it's raising its stock-repurchase plan to $4 billion for fiscal 2012, an increase of $500 million. CEO Frank Blake also said the company is on target to reach operating profit and ROIC goals set in 2009 sooner than it expected, and he reiterated the company's sales forecast for the full year.

Bank of America (NYSE: BAC  ) was the second best performer on the Dow this week, rising 7.7%. The company is one of the most sensitive on the Dow to the global economy, so the positive news out of Europe certainly helped the stock this week. Bank of America continues to be the Dow's best performer this year, up 36%.

McDonald's (NYSE: MCD  ) was the Dow's worst performer on the week, rising just 1.2% compared with the Dow's 3.6%. The fast-food giant released disappointing May sales numbers on Friday, showing that sales at stores open at least 13 months worldwide increased by only 3.3%. That figure was lower than analyst expectations of around 5%.

Outside the Dow, Facebook (Nasdaq: FB  ) , had another week to forget, dropping 2.2% over the past five days despite finishing the week strong with a 3% gain on Friday. There was again no shortage of news involving the social network, beginning with rumors that Facebook could open its service to kids under 13 with parental supervision. Facebook's stock was also the subject of lower price targets, including a target of $25 from Bernstein.

The big picture
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Brendan Byrnes owns no shares of any company mentioned above. Motley Fool newsletter services have recommended buying shares of McDonald's and The Home Depot. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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