U.S. Stocks Rally With Crude Oil for Second Day as Fed Gathers

  • S&P 500 rebounding from its biggest weekly drop since August
  • Stocks still set for worst December performance since 2002

The Standard & Poor’s 500 Index capped its first back-to-back gains in more than a month as energy companies led a rally with crude oil, while Federal Reserve officials started a two-day meeting at which they’re widely expected to raise interest rates for the first time since 2006.

Chevron Corp. and Exxon Mobil Corp. gained more than 3.8 percent, taking their two-day advances to at least 6.8 percent. Financial shares increased as concern over turmoil in high-yield bonds abated, with banks rallying the most in seven weeks on the eve of what most believe will be the end of the Fed’s zero interest rate policy. 3M Co. fell 6 percent, weighing on industrials after cutting its profit forecast.

The S&P 500 climbed 1.1 percent to 2,043.41 at 4 p.m. in New York, marking its first consecutive increases since Nov. 3. The Dow Jones Industrial Average rose 156.41 points, or 0.9 percent, to 17,524.91, even as 3M’s retreat amounted to about 63 points off the index. The Nasdaq Composite Index rallied 0.9 percent. About 8.1 billion shares traded hands on U.S. exchanges, 12 percent above the three-month average.

“What’s happening today is a realization that we ended up with a sizable rally in oil yesterday,” said Bob Baur, chief global economist at Principal Global Investors, which oversees $333 billion. “I think maybe the market is looking for some stabilization in oil and materials to put a bottom in some of the anxiety that’s hanging around the market.”

Prospects for the first U.S. rate increase since 2006 and a deepening oil rout had sparked a selloff in riskier assets in December. The S&P 500’s 1.8 percent decline is bucking the historical trend of gains in the final month, with the equity gauge on track for its worst December in 13 years and the biggest annual drop since 2008. It has slipped 4.1 percent since a May record.

Fed officials announce their rate decision tomorrow at 2 p.m. in Washington, and traders are pricing in a 78 percent chance of a liftoff. Data today reinforced expectations for a gradual increase in rates, with the cost of living holding steady in November, underscoring scant inflation that is well below the Fed’s goal. Among the other few economic cues before the rate announcement are reports on housing starts and industrial production Wednesday.

“I think the Fed will be comfortable with a rate hike tomorrow,” said Brian Jacobsen, who helps oversee $242 billion as the chief portfolio strategist at Wells Fargo Advantage Funds in Menomonee Falls, Wisconsin. “They’ll certainly want to convincingly signal that they’re going to follow a very shallow path in future rate hikes.”

While an improving U.S. economy has helped equities recover from a summer selloff and kept the Fed on track to raising borrowing costs, investors remain in a quandary as China’s slowdown threatens to weigh on global growth, a risk which continues to be reflected by weakness in commodity prices. Despite oil’s climb today, the Bloomberg Commodity Index extended further into 16-year lows.

Anxiety Eases

Amid Tuesday’s rally there were signs of easing bond-market anxiety that had leaked into equities after Third Avenue Management last week froze redemptions at a high-yield mutual fund. The SPDR Barclays High Yield Bond ETF rose 1.2 percent, and the iShares iBoxx $ High Yield Corporate Bond ETF surged 1.6 percent, the most in almost a year.

Another gauge of investor nervousness, the Chicago Board Options Exchange Volatility Index, fell 7.8 percent Tuesday to 20.95, extending its two-day decline to 14 percent. The measure of market turbulence known as the VIX surged 65 percent last week, the most since a record monthly jump in August.

All of the S&P 500’s 10 main industries climbed today, led by energy’s 2.9 percent jump. Financial and health-care companies added more than 1.3 percent.

Ensco Plc rose almost 8 percent to lead the energy group, while Diamond Offshore Drilling Inc. and Transocean Ltd. added at least 4.7 percent. Exxon Mobil had its strongest gain in more than three months. West Texas Intermediate crude futures settled 2.8 percent higher, up for a second day amid signs the U.S. may allow unfettered exports for the first time in 40 years.

Banks Jump

Banks surged, rising along with Treasury yields amid speculation that higher interest rates will lift profits. Comerica Inc. rallied 4.3 percent, while Regions Financial Corp. and Huntington Bancshares Inc. gained at least 3.6 percent. The KBW Bank Index climbed 3.1 percent as it recovered half of its worst weekly drop since August. Among other financial companies, Morgan Stanley and Goldman Sachs Group Inc. increased more than 3 percent.

Gains among biotechnology companies boosted the health-care group, with the Nasdaq Biotechnology Index jumping 2.8 percent. Illumina Inc. and Endo International Plc added more than 6 percent. Celgene Corp., Amgen Inc. and Biogen Inc. climbed at least 2.3 percent. Pharma giant Johnson & Johnson gained 1.9 percent.

Walt Disney Co. rose 2.6 percent, the most since Oct. 22. The entertainment company paced gains among consumer discretionary shares just days before “Star Wars: The Force Awakens” opens in theaters nationwide. Disney and Alibaba Group Holding Ltd. also announced a multiyear licensing agreement for a device that will deliver Disney and Pixar movies, games and travel services in China.

Media companies in the S&P 500 increased, with News Corp. and CBS Corp. advancing at least 1 percent. The group had declined more than 8 percent during the previous three weeks.

Among other consumer shares, online travel companies Priceline Group Inc., TripAdvisor Inc. and Expedia Inc. all climbed at least 1.9 percent. Ford Motor Co. added 1.8 percent, the most in a month.

Industrial companies in the benchmark were the day’s smallest gainer, thanks to the drag from 3M’s 6 percent drop. The maker of Post-it Notes and industrial products slid the most since in four years after cutting its 2015 earnings forecast for the second time in as many months, blaming sluggish growth in the world economy.

Agco Corp. lost 6.8 percent, the most in a year. The world’s third-largest agricultural machinery maker projected lower-than-expected sales and profit for next year. Competitor Deere & Co. slipped 2.1 percent.

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