S&P 500 Has Best 3-Day Rally Since January on Economy

U.S. stocks rose, sending the Standard & Poor’s 500 Index to its biggest three-day rally since January, on better-than-estimated economic data and assurances on stimulus efforts from Federal Reserve officials.

Nine of 10 industries in the S&P 500 (SPX) advanced. JPMorgan Chase & Co. and Citigroup Inc. gained more than 1.2 percent as financial companies rallied. An S&P index that tracks homebuilders surged 2.9 percent as D.R. Horton Inc. and Lennar Corp. increased at least 3.8 percent. Time Warner Cable Inc. jumped 4.4 percent as billionaire John Malone was said to be exploring scenarios for how Charter Communications Inc. could acquire the company.

The S&P 500 advanced 0.6 percent to 1,613.20 at 4 p.m. in New York. The Dow Jones Industrial Average rose 114.35 points, or 0.8 percent, to 15,024.49. Almost 6.2 billion shares changed hands on U.S. exchanges, 4.4 percent below the three-month average.

“The data continues to show that the economy is growing at a very slow pace and that unemployment is improving at a very slow pace,” Oliver Pursche, co-manager of the GMG Defensive Beta Fund and president of Suffern, New York-based Gary Goldberg Financial Services, said in a phone interview. The firm manages about $650 million. “It means the likelihood that the Federal Reserve changing course on its monetary policy this year is very low, and that further solidifies the case that last week’s correction was emotionally driven and an overreaction.”

The S&P 500 has rallied 2.6 percent over the past three days, the most since Jan. 4 and paring its decline for June to 1.1 percent. The index dropped more than 5 percent from May 21 through June 24 as the Fed said it may reduce its bond purchases if the economy and labor market improve as forecast.

Bull Market

Central bank stimulus has helped fuel a rally in stocks worldwide, with the benchmark U.S. index surging as much as 147 percent from its March 2009 low. Despite this month’s decline, the S&P 500 is up 2.8 percent for the quarter and has soared 13 percent for 2013.

Consumer spending in the U.S. rebounded in May following the largest drop in more than three years. Household purchases, which account for about 70 percent of the economy, rose 0.3 percent after a 0.3 percent decline the prior month, Commerce Department figures showed today in Washington. Incomes advanced 0.5 percent, more than projected.

More Americans signed contracts in May to buy previously owned homes than at any time in more than six years. Claims for unemployment benefits decreased by 9,000 to 346,000 last week, indicating employers are slowing the pace of firings.

Fed Speakers

Fed Bank of New York President William C. Dudley said in New York today that the central bank may prolong its asset-purchase program if the economy’s performance fails to meet its forecasts. Fed Governor Jerome Powell said in Washington that asset purchases may be scaled back later this year if growth holds up, and any such trimming depends on economic data rather than the calendar.

The comments came a day after Fed Bank of Richmond President Jeffrey Lacker said he expects the U.S. expansion to remain “sluggish” for “a couple more years.”

Data yesterday showed gross domestic product expanded at a slower-than-forecast 1.8 percent annualized rate in the first quarter, fueling speculation the Fed will maintain the pace of quantitative easing.

Volatility Index

The Chicago Board Options Exchange Volatility Index, or VIX, retreated 2 percent to 16.86. The benchmark gauge for U.S. stock options surged to the highest level since Dec. 28 last week. The index has fallen 11 percent this week.

Financial and phone companies advanced more than 0.9 percent to lead gains among S&P 500 industries. The Morgan Stanley Cyclical Index of stocks whose earnings are most tied to economic growth increased 1.1 percent. Hewlett-Packard Co. climbed 3.2 percent to $24.77. Boeing Co., the world’s largest planemaker, rallied 2.4 percent to $103.15.

An S&P index of homebuilders jumped 2.9 percent for a third day of gains, as 10 of 11 members advanced following the report on existing-home sales. D.R. Horton jumped 3.8 percent to $21.71. Lennar surged 3.8 percent to $37.38.

Financial stocks jumped 1.3 percent as a group. JPMorgan climbed 1.2 percent to $53.15. Citigroup added 1.4 percent to $48.28. American Express Co. rose 1.7 percent to $75.12.

Time Warner Cable surged 4.4 percent to $108.22. Malone’s Liberty Media Corp., which owns 27 percent of Charter Communications, is working on how to structure an offer with enough cash to win over Time Warner Cable investors, according to people familiar with the discussions. Time Warner Cable isn’t interested in a deal and doesn’t think Liberty and Charter can come up with an offer that’s attractive, according to people familiar with management’s thinking.

ConAgra Soars

ConAgra Foods Inc. (CAG) added 5.1 percent to $35.04. The maker of Chef Boyardee pasta and Pam cooking spray reported quarterly profit that topped analysts estimates as acquisitions drove sales in its consumer foods unit.

Paychex Inc. (PAYX) dropped 3.7 percent to $36.60. The payrolls manager reported fourth-quarter earnings per share of 34 cents, below the average analyst estimate for profit of 37 cents. Revenue in the period was $585.3 million, missing the $586.2 million average projection.

Investors should expect about $13 billion in selling of equities and buying of bonds as pension fund managers rebalance their portfolios at the end of the second quarter, Ramon Verastegui, a derivatives strategist at Societe Generale SA in New York, wrote in a June 25 note.

Bond Funds

The S&P 500 has outperformed government bonds since the end of March with a total return of 2.7 percent through yesterday compared with a 5.1 percent loss for 10-year Treasuries, according to data compiled by Bloomberg and Bank of America Merrill Lynch.

U.S.-listed bond mutual funds and exchange-traded funds saw record monthly redemptions of $61.7 billion through June 24, according to TrimTabs Investment Research, amid concern the Fed may scale back its unprecedented stimulus. Mutual funds that invest in U.S. stocks had $463 million in outflows in the five days that ended with the Fed’s policy statement on June 19, according to data from the Investment Company Institute released today. Redemptions since May 16 total $7.3 billion.

“The flows coming out of fixed income need to go somewhere,” Bill Schultz, chief investment officer who oversees about $1.1 billion at McQueen Ball & Associates in Bethlehem, Pennsylvania, said by phone. “Money market funds don’t offer anything, bonds are less attractive, so U.S. domestic equities on a relative scale look like the most attractive asset going forward.”

To contact the reporters on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net; Katie Brennan in New York at kbrennan23@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net

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