June 9 (Bloomberg) -- U.S. stocks rallied, driving the Standard & Poor’s 500 Index to its best weekly gain since December, amid speculation European and American central banks will join China in trying to spur economic growth.
All 10 S&P 500 industry groups rose during the week as financial companies jumped the most, adding 4.7 percent. Chesapeake Energy Corp. soared 18 percent, leading gains in commodity producers amid plans to replace almost half its board and an agreement to sell its pipeline interests. Home Depot Inc. climbed 9.2 percent after boosting its share repurchase program. Facebook Inc. slipped 2.2 percent for its third straight weekly loss since it went public in May.
The S&P 500 rose 3.7 percent to 1,325.66, rebounding from a 3 percent slump last week. The Dow Jones Industrial Average climbed 435.63 points, or 3.6 percent, to 12,554.20, the biggest increase since Dec. 23, after dipping below its 2011 closing level on June 1 amid a worse-than-forecast jobs report.
“The optimism comes from the belief that there is going to be some kind of coordinated activity from central banks,” Bill Greiner, who oversees $13 billion as chief investment officer at Mariner Wealth Advisors in Kansas City, Missouri, said in a phone interview. “The question in my mind is how close to the edge do the world of investors have to move before the central banks start to move in the direction that they need to.”
Investors gravitated toward stocks during the week after the S&P 500 retreated 9.9 percent from an April high, pushing its valuation to 12.9 times earnings from the last 12 months. That’s 21 percent below the average of 16.4 since 1954, according to data compiled by Bloomberg.
Optimism that policy makers would take steps to stimulate economic growth gave benchmark indexes their biggest gains of the year on June 6, with the S&P 500 and Dow advancing at least 2.3 percent. Equities rallied the next day as China cut interest rates for the first time since 2008 and European Central Bank President Mario Draghi said officials stand ready to act. The rally fizzled after Federal Reserve Chairman Ben S. Bernanke said the central bank will assess the economy before deciding if more stimulus is needed.
Economic reports sent out mixed signals, with a measure of service industries showing a surprise increase while factory orders unexpectedly dropped. Optimism grew that Europe was making progress on its debt crisis. Finance officials will hold discussions this weekend on a potential bailout of Spain as the nation is poised to become the fourth of the 17 euro-area countries to require emergency assistance.
“The overriding factor that’s driving the market is really Europe,” Greg Woodard, a portfolio strategist at Manning & Napier in Fairport, New York, which manages about $40 billion, said in a phone interview. “Equities overall are very attractively priced. But over the past several years, equities have not been trading on valuations, they have not been trading on underlying fundamentals. When we get positive news out of Europe, we get a risk-on type of environment. And when we get negative news, it’s risk off.”
Greiner of Mariner Wealth said his firm began selling stocks two months ago and he’s not ready to put the cash back to work.
“I don’t think we’re out of the woods,” he said. “We have some further volatility and potential downside movement in front of us. The probability of the U.S. slipping into some sort of economic contraction in 2013 is building. With that in mind, valuations don’t look particularly cheap, to be frank.”
The Morgan Stanley Cyclical Index of companies most-tied to the economy jumped 4.4 percent for the week, the biggest advance since Dec. 2. A gauge of homebuilders in S&P indexes rallied 4.6 percent, as PulteGroup Inc. climbed 8.7 percent to $8.98 and Lennar Corp. advanced 6.1 percent to $26.55.
The KBW Bank Index added 4 percent, the most since March 16. American International Group Inc. surged 12 percent to $30.48, leading gains among financials. Citigroup Inc. climbed 9.4 percent to $27.77, while Bank of America Corp. advanced 7.7 percent to $7.56.
Chesapeake surged 18 percent to $18.36. The energy explorer, battered by collapsing natural-gas prices and growing investor mistrust, said it will replace almost half its board under pressure from billionaire investor Carl Icahn. The company also agreed to sell its pipeline interests to Global Infrastructure Partners for more than $4 billion.
Home Depot rose 9.2 percent, the most in the Dow, to $52.35. The largest U.S. home-improvement retailer boosted its stock repurchase plan by $500 million for fiscal 2012, bringing the total to $4 billion.
Iron Mountain Inc. soared 19 percent, the most in the S&P 500, to $32.72. The document-storage company approved a plan to convert to a real estate investment trust following pressure from activist investor Elliott Management Corp.
Facebook slipped 2.2 percent to $27.10, extending its loss from its debut to 29 percent. No large U.S. company is attracting more attention from short sellers than the world’s biggest social-networking amid bets the stock will keep falling.
Short interest on Facebook reached 6.8 percent of shares outstanding, according to data compiled by Bloomberg and Data Explorers Ltd., a New York-based research firm. None of the S&P 500 companies with at least $50 billion in market capitalization has short interest higher than 3.1 percent, the data show.
Alpha Natural Resources Inc. had the biggest decline in the S&P 500, sinking 11 percent to $9.32. The second-biggest U.S. coal producer is shutting mines in Kentucky and closing some offices as cheap natural gas and clean-air rules slash demand from electricity generators.
Halliburton Co. slipped 6.7 percent to $27.96. The world’s largest provider of hydraulic-fracturing services said North American profit margins this quarter will shrink more than previously forecast because of higher material costs.
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