U.S. Stocks Rally Amid Focus on Interest Rates After Jobs Data

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U.S. stocks rallied after comments by a Federal Reserve official refocused investors on the implications for interest rate policy of last week’s employment data.

Energy and utility companies led the advance, with Hess Corp. and Halliburton Co. up at least 4.4 percent. Apple Inc. and Microsoft Corp. added more than 1.6 percent. Coca-Cola Co. rose 1.2 percent amid gains in consumer stocks.

The Standard & Poor’s 500 Index jumped 0.7 percent to 2,080.62 at 4 p.m. in New York after falling as much as 0.5 percent at the session’s open. The benchmark closed above its average price for the past 50 days. The Dow Jones Industrial Average climbed 117.61 points, or 0.7 percent, to 17,880.85. The Nasdaq Composite Index added 0.6 percent. About 6.2 billion shares traded hands on U.S. exchanges, 9 percent below the three-month average.

“The Federal Reserve’s Dudley has come out with several dovish statements, which in part has put a floor in the overall markets,” said Chad Morganlander, a money manager at Stifel, Nicolaus & Co., which oversees about $170 billion. “Market speculators and economists had time to absorb the news and they believe that much of the data has been somewhat transitory in nature.”

Futures fell 1 percent on Friday after Labor Department data showed payrolls increased by 126,000 in March, the least since December 2013. The report is the latest of a number of economic releases to miss projections this year. While exchanges were closed for the Good Friday holiday, the contracts traded for 45 minutes after the release. Markets were closed Monday in western Europe for a holiday.

Dudley Remarks

New York Fed President William C. Dudley said Monday the pace of interest-rate increases is likely to be “shallow” once the Fed starts to tighten, and recent weakness in the economy was largely the result of temporary conditions.

“It will be important to monitor developments to determine whether the softness in the March labor market report evident on Friday foreshadows a more substantial slowing in the labor market than I currently anticipate,” he said in remarks prepared for a speech in Newark, New Jersey.

Investors are weighing economic reports after the Fed said its first interest-rate increase since 2006 will be data-dependent. Chair Janet Yellen said March 27 that she expects to raise rates this year, and that subsequent increases will be gradual.

Data Watch

A report Monday showed service industries grew in March at about the same pace as a month earlier, indicating the biggest part of the U.S. economy is holding up. The Institute for Supply Management’s non-manufacturing index cooled to 56.5 from the prior month’s 56.9.

The jobs report showed hiring slowed even as wage gains climbed, fueling concern that profits already forecast to fall for the first quarter since 2009 will come under more pressure. While the S&P 500 climbed 0.3 percent last week in a holiday shortened period, it’s still down 1.7 percent from a record on March 2 amid concern a stronger dollar and tumbling oil prices will hurt earnings.

Alcoa Inc. reports quarterly results on Wednesday, unofficially kicking off the earnings season. Profits for S&P 500 companies will decline 5.8 percent in the first quarter, according to estimates compiled by Bloomberg. Investors may face the longest stretch of declines since the financial crisis, with analysts projecting slumps of 4.2 percent and 1 percent over the second and third quarters.

The S&P 500 more than tripled from a low in 2009, buoyed by three rounds of Federal Reserve stimulus. With equities rising 20 percent annually and wages up 2 percent, the gap between the two has never been wider in any bull market since 1966.

Short Covering

All 10 of the S&P 500’s main groups rose Monday, as utilities and energy shares rallied the most. The Chicago Board Options Exchange Volatility Index rose 0.5 percent to 14.74. The gauge, know as the VIX, slipped 2.7 percent last week.

Gains in U.S. stocks were led by companies traders had been betting would retreat. A Goldman Sachs Group Inc. gauge of most-shorted stocks rose 1.6 percent, more than twice as much as the full S&P 500. Over the last two days it’s gained 2.5 percent. Shorted stocks often rise when traders are forced to purchase them to close bearish positions.

“You’re seeing strength in the more-shorted stocks because when the market gets a little bit of a positive feeling, it prompts investors to cover those shorts,” said Robert Pavlik, who helps oversee $9 billion as chief investment strategist at Boston Private Wealth. “There’s a little bit of a squeeze going on.”

Energy Jumps

Energy companies jumped 1.8 percent to their highest level in five weeks alongside rising oil prices. Transocean Ltd. rose 10 percent and Diamond Offshore Drilling gained 5.6 percent. West Texas Intermediate crude advanced 6.1 percent.

The utilities group rallied for a third session and five out of six, with a 1.3 percent climb as AES Corp. and Duke Energy Corp. advanced at least 1.7 percent.

Consumer staples in the benchmark rose 0.8 percent, continuing a third day of gains to a one-month high. The industry gauge was paced by beverage companies including Monster Beverage Corp., Coca-Cola Co. and Constellation Brands Inc., all up more than 1.2 percent.

Tesla Motors Inc. added 6.3 percent, the most since October, after the company said deliveries rose 55 percent during the first three months of the year compared with 2014, beating its own guidance.

Airlines Stumble

Delphi Automotive Plc rose 3.2 percent to a record after Morgan Stanley and RW Baird & Co. raised their price targets for the vehicle component manufacturer following its analyst day. Delphi rose 3 percent on Thursday. An S&P 500 measure of automotive companies rose 0.8 percent on Monday.

Microsoft Corp. climbed 3.1 percent, its largest gain since Dec. 18, after Wells Fargo & Co. raised its rating to outperform from market perform. Wells Fargo cited “sound moves” by management, including new cloud and mobile product introductions and cost controls.

Airlines tumbled for a fourth day amid oil’s rally. A Bloomberg gauge on U.S. carriers fell 2.3 percent, and is down 12 percent since its recent high on March 20. Southwest Airlines Co. and United Continental Holdings Inc. lost more than 2.8 percent.

Banks in the S&P 500 slipped, led by Hudson City Bancorp Inc.’s 6.9 percent retreat. M&T Bank Corp., which slid 2.7 percent, said regulators won’t be able to complete a review of its proposed acquisition of Hudson City by April 30, meaning the deal will miss its latest deadline.

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