U.S. stocks surged, sending the Standard & Poor’s 500 Index to its highest level since 2007, as the Federal Reserve said it will buy mortgage-backed securities to bolster the economy.
All 10 groups in the S&P 500 gained. Bank of America Corp. and JPMorgan Chase & Co. jumped more than 3.7 percent to pace gains among financial shares. Alcoa Inc. and Cliffs Natural Resources Inc. rallied at least 3 percent as commodity companies advanced. Pall Corp. rose 8 percent as it reported quarterly earnings that topped analysts’ estimates. Apple Inc. added 2 percent after unveiling a new version of the iPhone yesterday.
The S&P 500 rallied 1.6 percent to 1,459.99 at 4 p.m. in New York, rising for a third straight day and closing at the highest level since Dec. 31, 2007. The Dow Jones Industrial Average rose 206.51 points, or 1.6 percent, to 13,539.86. More than 8.1 billion shares traded hands in the U.S. today, the most since June and 35 percent above the three-month average.
“It was a very powerful statement,” Kevin Caron, a market strategist at Stifel Nicolaus & Co. in Florham Park, New Jersey, said in a telephone interview. The firm oversees about $127 billion. “The Fed is going all in here, especially with their commitment to continue asset purchases until they see the desired result in the form of a lower unemployment rate. This statement removes a lot of uncertainty about the Fed’s commitment to maintaining price stability.”
The Fed said it will expand its holdings of long-term securities with open-ended purchases of $40 billion of mortgage debt a month. The central bank will continue its purchases of mortgage-backed securities and undertake other asset purchases if the outlook for the labor market doesn’t improve substantially, the Federal Open Market Committee said today in a statement at the end of its two-day meeting in Washington.
The FOMC also said it would probably hold the federal funds rate near zero “at least through mid-2015.” Since January, the Fed had said the rate was likely to stay low at least through late 2014. Fed officials said economic growth will improve faster than they had earlier projected, as they upgraded their 2013 and 2014 estimates for gross domestic product.
“What the market didn’t expect was having this labor market kicker,” John Canally, an economist and investment strategist at LPL Financial Corp. in Boston, said by phone. The firm oversees about $350 billion. “The Fed said if the labor market doesn’t improve, the committee will continue.” He said, “That was a little bit of a bolder step than the market would have thought and what is adding to the risk-on trade here.”
Data today showed the number of Americans filing applications for unemployment benefits rose more than projected last week, indicating scant improvement on the outlook for jobs. Wholesale prices in the U.S. increased in August by the most in more than three years, reflecting a surge in energy costs.
Two rounds of large-scale asset purchases totaling $2.3 trillion have failed to reduce the jobless rate below 8 percent more than three years into the recovery. In a speech to central bankers and economists on Aug. 31, Fed Chairman Ben S. Bernanke said “the stagnation of the labor market in particular is a grave concern.”
The S&P 500 is about 7 percent away from reaching its record closing high from 2007 after rallying 16 percent this year. The equities index has climbed in the past three months amid expectations central banks will take steps to stimulate the economy. The European Central Bank last week announced a bond-buying program.
All 30 stocks in the Dow rallied and all 10 groups in the S&P 500 rose at least 1 percent, led by financial and commodity shares.
Bank of America, the second-largest U.S. bank by assets, increased 4.8 percent to $9.40. JPMorgan added 3.7 percent to $41.40. Shares of the New York-based lender have erased their decline since Chief Executive Officer Jamie Dimon disclosed a $2 billion trading loss in May. Class A shares of Berkshire Hathaway Inc. jumped 2.1 percent to $132,851, the highest since October 2008.
Alcoa, the largest U.S. aluminum producer, gained 3 percent to $9.63, and Cliffs Natural Resources, the biggest iron-ore producer in the country, jumped 6.3 percent to $43.18. The Morgan Stanley Cyclical Index, a gauge of 30 U.S. stocks tied to economic growth, rose for the third-straight day, climbing 1.7 percent. The KBW Bank Index, a measure of 24 U.S. lenders, jumped 2.8 percent to 51.02, the highest since May 2011.
Pall rallied 8 percent to $62.80 after the supplier of water-filtration systems reported fiscal fourth-quarter profit that beat analysts’ estimates as pharmaceutical and aerospace sales increased.
Apple gained 2 percent to a record $682.98, after advancing 1.4 percent yesterday. The company is betting the new iPhone, which has a bigger screen, a faster chip and access to speedier wireless networks, is loaded with enough functionality to set it apart in a market swiftly crowding with phones by Nokia Oyj, Microsoft Corp. and Samsung Electronics Co.
The device may be poised to become the fastest-selling technology gadget in history. Carl Howe, an analyst at Boston-based Yankee Group, predicted Apple will sell more than 10 million by month’s end, surpassing the record set last year by the predecessor device, the iPhone 4S.
Northrop Grumman Corp. fell 1.4 percent to $67.01. Revenue and margins at the maker of Global Hawk surveillance drones may decline more than other large defense companies as the U.S. makes budget cuts, according to UBS AG analyst David Strauss.
Nike Inc. slid 1.6 percent to $99.20. Kate McShane, an analyst at Citigroup Inc., cut her recommendation on the stock from buy to neutral, citing valuation and the potential for deceleration of future orders.