- Energy, raw-materials shares climb for a fifth session
- Dow Jones Industrial Average reaches highest since Aug. 20
U.S. stocks climbed, with the Standard & Poor’s 500 Index posting its longest winning streak this year, on speculation that the worst has been priced into shares and growth in the economy will be strong enough to support corporate profits.
Equities rallied as companies that benefit from a weaker dollar climbed. Disappointing employment data Friday pushed out expectations for an interest-rate increase by the Federal Reserve, sending the dollar lower which helps boost American multinational companies’ profits when their overseas earnings are converted back to the U.S. currency.
Investors continued to target equities hardest hit during the third quarter, which was the worst for stocks since 2011. Energy companies in the S&P 500 added to their rebound from an 18 percent quarterly drop. Alcoa Inc. and Dow Chemical Co. gained at least 4.1 percent Monday to pace a climb in raw-materials. The Dow Jones Industrial Average reached a six-week high.
“Pushing out interest rate hike expectations to next year has been critical,” said Michael Purves, chief global strategist at Weeden & Co in Greenwich, Connecticut. “Today is simply a response to oversold conditions.”
The S&P 500 rose 1.8 percent to 1,987.05 at 4 p.m. in New York, and is up 5.6 percent since last Monday’s close. The Dow climbed 304.06 points, or 1.9 percent, to 16,776.43. The Russell 2000 Index increased 2.5 percent, the most in more than a month, and is 5.3 percent higher since ending its longest losing streak in nine years last week.
Equities have see-sawed between gains and losses since August’s selloff, as investors wrestle with concerns about a slowing global economy and confusion over the Fed’s rate plans. The S&P 500 rallied 6.8 percent from its August low into last month’s Fed meeting, and then fell in seven of the next eight sessions before finishing the quarter down 6.9 percent.
The odds of a Fed liftoff on rates this month have fallen to 10 percent since the weaker payroll report, and most futures traders don’t see an increase from near zero until at least March. The chance for a January increase was priced at about 45 percent, down from 52 percent before the September jobs report.
Chances of a Fed rate increase aren’t the only things falling. After the S&P 500 plunged 10 percent in four days in August for the first correction since 2011, 12 of the 21 strategists surveyed by Bloomberg cut their year-end forecasts. The average prediction has dropped 4.1 percent to 2,142 since Aug. 10.
To get to analysts’ average estimate, the S&P 500 would have to rally more than 7.8 percent between now and the end of the year. Such an advance during that period wouldn’t be a far cry from the average 6.4 percent rally that occurred over that stretch since 2009.
Attention will shift to earnings this week, as investors look for further insight on how slowing global growth is affecting U.S. companies. Alcoa unofficially kicks off the latest reporting season after the markets close on Oct. 8.
Analysts project earnings for S&P 500 members dropped 6.9 percent in the third quarter. Still, a Fed measure of corporate income has posted its biggest quarterly increase since 2012, suggesting the overall picture for profits may be skewed by downgrades at energy producers combating weak oil prices.
Energy shares were among the strongest performers in the S&P 500’s 10 main industries Monday, rising 2.9 percent. Raw-material, industrial and phone companies added at least 2.6 percent. Health-care lagged as biotechnology shares slipped, with the Nasdaq Biotechnology Index down for the first time in four days.
The Chicago Board Options Volatility Index fell 6.7 percent Monday to 19.54 amid its longest stretch of declines since July. The gauge known as the VIX closed below 20 for the first time since Aug. 20, ending its lengthiest run above that level since 2012. About 7.9 billion shares changed hands on U.S. exchanges, 7 percent above the three-month average.
“Those people that wanted to sell have already sold by now, and now the market is coming up,” said Otto Waser, chief investment officer at R&A Research & Asset Management AG in Zurich. “Given the current market reaction, the correction seems to be over. The market should stabilize and either rally now or in the first quarter of next year. We’re looking at a very modest pace of rate increases anyway.”
General Electric Co. rose 5.3 percent to a two-month high, helping to boost industrials after Nelson Peltz’s Trian Fund Management LP acquired a $2.5 billion stake in the company. “We invested in GE because it is undervalued and under-appreciated by the market despite what we believe is a transformation that will allow its world-class industrial businesses to drive attractive shareowner returns,” Peltz said in the statement.
Consol Energy Inc., the worst-performer in the S&P 500 this year, climbed 9 percent to rank among today’s leaders in the benchmark index. Chesapeake Energy Corp. added 6.7 percent to trim its decline this year to 57 percent, the second-biggest drop within the energy group in 2015. Oil rose for a second day after the number of rigs drilling in the U.S. slumped to a five-year low, continuing a slowdown in crude production that promises to reduce a global glut.
Capital-goods companies in the S&P 500 are up 6.7 percent since reaching an almost two-year low last Monday. United Rentals Inc. jumped 8 percent to lead the group, its biggest gain since July 2013. Deere & Co. rose 6.3 percent, the most in more than four years. Members of the United Auto Workers ratified a new six-year labor agreement with Deere.
Endo International Plc lost 5.3 percent to weigh on the Nasdaq Biotech Index, after a three-day rally pushed shares up 17 percent. Incyte Corp. retreated 5.5 percent after soaring 33 percent over four days last week.