- The S&P 500 advanced 6.1 percent over the past seven days
- Rebounds in crude oil, raw materials have pushed stocks higher
The defusing of pressure in the U.S. stock market is occurring with the aid of the two industries responsible for most of its stress.
The Chicago Board Options Exchange Volatility Index retreated seven straight days through Wednesday, the longest streak of declines since February 2014. Nervousness in equities ebbed as energy producers rallied 14 percent in the biggest advance since 2009, while commodity companies surged 12 percent in the longest rally in 14 months.
It’s a new role for resource stocks whose swoons into the equity correction that climaxed in late August were in many cases two and three times greater than the market as a whole. Resilience in the shares amid jumps in crude oil and metals prices is emboldening investors whose apprehension seemed to know no ceiling six weeks ago.
“The market has rebounded really well, and investors have drawn some confidence for that,” said John Manley, who helps oversee about $233 billion as chief equity strategist for Wells Fargo Funds Management in New York. “We’re in the process of some of the lagging sectors picking up the slack. Investors are feeling better about the world not sliding into a recession.”
The Standard & Poor’s 500 Index decreased 0.3 percent to 1,990.45 at 9:48 a.m. in New York. The gauge had increased in six of the prior seven sessions through Wednesday. The benchmark equity gauge has rallied 6.6 percent since falling to a 10-month low on Aug. 25.
The VIX rose 1.4 percent to 18.66 after declining 33 percent over the prior seven days. The volatility gauge spiked as high as 40.74 after doubling in two days during the height of the August selloff.
Energy companies in the S&P 500 have been boosted by a rally in oil of more than 20 percent after the resource fell to six-year low on Aug. 24. For raw-materials stocks, the relief has come as prices have risen for industrial metals. The Bloomberg Commodity Index, which reflects the movement of futures prices, has rebounded 5.8 percent since late August.
Strength Wednesday extended to health-care, where biotechnology stocks have shown signs of recovering after plunging into a bear market amid speculation that prescription drug prices are too high. The Nasdaq Biotechnology Index has climbed 6.2 percent in six sessions.
“The market is coming into a bit more of a rational channel,” Ernie Cecilia, chief investment officer at Bryn Mawr Trust Co., which oversees $8.5 billion in Bryn Mawr, Pennsylvania, said by phone.
The S&P 500 is 0.6 percent below the 2,000 level, which has been tested but not breached on multiple occasions as the benchmark gauge attempts to rebound from its worst quarter in four years. The level has marked the top end of a range the index has traded in since bottoming at 1,867.61 in August.
Market watchers like Tom Lee, managing partner and co-founder of Fundstrat Global Advisors LLC, thinks the current rally has the momentum to pop above the range, especially after the volatility gauge halted on Monday its longest streak of closing above 20 since 2012.
The VIX trading below 20 “diminishes the case for being short,” Lee said in an Oct. 5 phone interview. Any sort of good news “could mean we explode to the upside,” he said.
While his year-end forecast of 2,325 is the most bullish out of 21 market strategists surveyed by Bloomberg, the average estimate still calls for a 7.3 percent increase for the S&P 500 from current levels. The index has risen by an average of 6.7 percent in the fourth quarter since the start of the 6 1/2-year bull market.
“One of the comments I get from investors is that this correction was long overdue, it’s good to have it going on, and possibly behind us,” said Cecilia. “They’re saying, ‘I’m getting more comfortable with the market dynamics. These groups have been beat up. I’m going in to buy some bargains.”’