U.S. Stocks Rally Most in Week on Optimism Before Jackson Hole

U.S. stocks rallied, driving the Standard & Poor’s 500 Index up from the cheapest valuations since 2009, as weaker-than-estimated economic data reinforced optimism the Federal Reserve will act to spur growth.

Monsanto Co. (MON), Chevron Corp. (CVX) and Microsoft Corp. (MSFT) added at least 3 percent, pacing gains in companies most-tied to the economy. The Morgan Stanley Cyclical Index rose 2.9 percent, breaking a five-day losing streak. Sprint Nextel Corp. (S) jumped 10 percent, the most since May 2010, after the Wall Street Journal said it will start selling Apple Inc.’s iPhone. Financial shares reversed losses after the Federal Deposit Insurance Corp.’s list of “problem” banks shrank for the first time since 2006.

The S&P 500 rose 3.4 percent to 1,162.35 at 4 p.m. in New York, for the biggest rally since Aug. 11. All 10 industries in the benchmark gauge rose, with gains ranging between 1.8 percent and 4.6 percent. The Dow Jones Industrial Average added 322.11 points, or 3 percent, to 11,176.76.

“There’s plenty of evidence that the economy has slowed,” Kevin Caron, market strategist in Florham Park, New Jersey, at Stifel Nicolaus & Co., said in a telephone interview. His firm has more than $115 billion in client assets. “The speculation would be that it’s possible that the Fed will say something designed to calm markets and provide a bit of encouragement.”

Equities advanced after the Fed Bank of Richmond’s business activity index dropped to minus 10 in August, the weakest since June 2009. The monthly survey of producers in the region covering the Carolinas, Maryland, Virginia and West Virginia corroborated factory reports from Philadelphia and New York that pointed to weakness in the industry. Also, the Commerce Department said sales of new U.S. homes declined more than projected in July to the lowest level in five months.

Trillions Lost

The S&P 500 fell 16 percent from July 22 through Aug. 19 in its biggest four-week loss since March 2009. Companies trade at an average 11.3 times estimated earnings, near the lowest level in 2 1/2 years. The four-week global equity rout has erased $8 trillion from share values as Europe’s debt crisis and worsening economic reports raised concern the global economic recovery is faltering.

Stocks briefly pared gains today after a 5.8-magnitude earthquake in Virginia shook Washington and New York. More than 66 million shares changed hands on U.S. exchanges at 1:55 p.m. New York time following the earthquake in Virginia, more than any minute since just after the market opened at 9:30 a.m.

Central bankers from around the world meet this week in Jackson Hole, Wyoming. During last year’s conference, Fed Chairman Ben S. Bernanke signaled a second round of asset purchases, known as QE2, that buoyed asset markets. The S&P 500 rose 28 percent between Aug. 26, 2010, and Feb. 18 after he foreshadowed the $600 billion Treasury program.

‘Some Pressure’

Bernanke “probably feels some pressure from the stock market to respond,” Howard F. Ward, a money manager at Mario Gabelli’s Gamco Investors Inc., said on Bloomberg Television’s “InsideTrack” with Deirdre Bolton and Erik Schatzker. “He should lay out a game plan of what he can do should the economic outlook warrant that.”

Companies whose earnings depend on economic growth, including energy, technology, consumer and industrial shares, had the biggest gains in the S&P 500 among 10 industries, rising at least 3.5 percent. Monsanto rallied 5.9 percent to $69.12. Chevron gained 4.3 percent to $97.33. Microsoft added 3.1 percent to $24.72.

Sprint surged 10 percent, the most since May 2010, to $3.59. The Wall Street Journal said the third-largest U.S. mobile-phone carrier will start selling the iPhone 5 in October.

Financial Shares Rebound

Financial shares in the S&P 500 reversed a 1.3 percent loss, rising 3.2 percent. Bank of America Corp. (BAC) fell 1.9 percent to $6.30. The lender that lost half its market value this year has sufficient capital to weather mounting costs tied to souring loans, said Richard Bove, an analyst at Rochdale Securities.

“Bank of America has so much cash on its balance sheet that it could pay back all of its short-term debt and a big chunk of its long-term debt,” Bove said in an interview today on Bloomberg Television’s “InBusiness With Margaret Brennan.” “There’s no reason for the bank to have to go out and raise capital whatsoever.”

Financial institutions in the S&P 500 tumbled 25 percent in 2011 through yesterday, the most among 10 groups, amid speculation the government debt crisis in Europe will spur banking losses. The industry has the second-biggest weighting in the benchmark measure of U.S. shares at 14 percent.

Bear Market

The S&P 500 fell 18 percent from an almost three-year high on April 29 through Aug. 8 amid concern Europe’s debt crisis and a downgrade of the nation’s credit rating by S&P would hurt the economy. The benchmark gauge closed as low as 1,119.46 on Aug. 8, within 29 points of a bear market, or 20 percent drop.

U.S. stocks are cheap after suffering the biggest losses since March 2009, said Byron Wien, a senior managing director at Blackstone Group LP, the world’s biggest private equity firm.

“You got the market down to 11 times earnings,” Wien said in a radio interview today on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. “Usually it sells at around 15. That makes a number of stocks attractive here.”

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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