U.S. Stocks Rally Amid Stimulus Optimism Led by Energy Shares

Nouriel Roubini: Global Economy Not Back to 2008
  • Energy rally tracks crude's best 2-day climb since 2008
  • Apple jumps the most since August to power tech gains

The Standard & Poor’s 500 Index capped its strongest two-day rally in three months, amid speculation central banks around the world will act to support the global economy even as the Federal Reserve tightens policy.

Energy companies led, posting their first weekly advance this year, with Schlumberger Ltd. and Valero Energy Corp. gaining at least 6.1 percent. Technology shares added 2.8 percent, with Apple Inc. rising the most since August. JPMorgan Chase & Co. climbed 3.1 percent to lead a rebound by banks. American Express Co. slumped 12 percent, the biggest drop since 2009, after its quarterly earnings fell 38 percent. 

The S&P 500 gained 2 percent to 1,906.90 at 4 p.m. in New York, the best back-to-back increase since October after turning positive for the week. The Dow Jones Industrial Average climbed 210.83 points, or 1.3 percent, to 16,093.51, with the decline in American Express a 52-point drag. The Nasdaq Composite Index increased 2.7 percent, the most since September. About 9.1 billion shares traded hands on U.S. exchanges, 20 percent above the three-month average.

“I think we’re a heck of a lot closer to the bottom, and I think it’s a better time to put your foot in the water, but don’t back up the truck yet,” said Andrew Brenner, head of international fixed income for National Alliance Capital Markets in New York. “It looks like central banks are on the warpath against weakness. That’s going to put a real risk-on component to today.”

Equities continued a snap-back from the worst start to a year since 2009, hammered as oil sank to 12-year lows amid rising supplies and concern that flagging global growth, particularly in China, will drag on the U.S. economy. Crude rallied Friday to its biggest two-day advance since 2008.

The S&P 500 rebounded yesterday from a 21-month low as European Central Bank President Mario Draghi signaled the potential for more stimulus as early as March. Sentiment also received a boost overnight from speculation that the Bank of Japan is considering additional easing.

The benchmark ended a streak of weekly declines at three, rising 1.4 percent in the holiday shortened period. The S&P 500 on Wednesday dipped below a level technical analysts call oversold, meaning a selloff has gone too far. A rout stoked by concerns about China’s slowdown and plunging oil had wiped off as much as $2.45 trillion from U.S. equities this year.

“It’s a classic oversold bounce after Draghi’s comments yesterday and the noise on Japanese stimulus overnight,” said Veronika Pechlaner, who helps oversee $10 billion at Ashburton Investments, part of FirstRand Group. “It’s become harder and harder for stimulus to really support the economic fundamentals. But at least we have a bit more stable trading environment for a couple of days.”

The Chicago Board Options Exchange Volatility Index fell 16 percent Friday to 22.34, the biggest drop in seven weeks. The measure of market turbulence known as the VIX has surged about 23 percent so far in 2016, on pace for its biggest climb since a record-setting jump in August.

Earnings Watch

Investors are keeping watch on corporate earnings to gauge the health of the U.S. economy. Analysts estimate profits of S&P 500 firms slumped 6.3 percent in the fourth quarter, better than the 7 percent drop expected a week ago. Of the 73 companies that have reported results so far, 78 percent beat earnings projections while 48 percent exceeded sales forecasts. McDonald’s Corp., Apple, Facebook Inc. and Boeing Co. are among more than 130 companies due to report next week.

Among the few pieces of data before the Fed’s two-day policy meeting next week, a report today showed purchases of previously owned homes rose more than projected in December, helped in part by warmer weather to finish the best year since 2006.

Policy makers have made it clear that the pace of interest-rate increases will depend on progress in the economy. While chances for a January Fed rate boost have stayed low, odds for a March lift have fallen since the start of the year, with traders pricing in a 26 percent chance, compared with even odds at the start of the year.

Broad Rally

All of the S&P 500’s 10 main groups rose, led by a 4.3 percent surge for energy companies. Technology stocks climbed 2.8 percent, the most in three months, with Apple’s 5.3 percent gain contributing the most to the group’s increase. Phone and financial companies gained at least 1.9 percent.

The energy producers had the best back-to-back rally in almost five months. Williams Cos. soared the most in the S&P 500 today, up 23 percent. The shares are still down 23 percent this year. Oneok Inc. and Kinder Morgan Inc. rose more than 10 percent, while Chevron Corp. added 3.1 percent to take its two-day climb to 5.8 percent.

Qorvo Inc. rallied 8.5 percent, the most since November, following a report that the manufacturer could pick up a power amplifier design win for the Samsung Galaxy S7 in the first quarter. Hewlett Packard Enterprise Co. added 7.6 percent, bringing its two-day gain to almost 11 percent.

Consumer discretionary companies rose 1.7 percent, with Viacom Inc. adding 3.9 percent. Walt Disney Co. jumped 3.1 percent, its biggest gain since August. D.R. Horton Inc., which is scheduled to release earnings before the market opens on Monday, rose 4 percent. Amazon.com Inc. contributed most to the group’s gains, rising 3.7 percent for its best since October.

Banks, AmEx

Banks in the benchmark rebounded from four days of declines. JPMorgan Chase and Citigroup Inc. rose more than 2.2 percent. The KBW Bank Index gained 1.6 percent after sliding 6.5 percent during the prior four sessions.

Industrial shares lagged as General Electric Co.’s 1.2 percent slide weighed on the group. The company reported fourth-quarter sales that missed analysts’ estimates, sending the shares down as much as 3 percent. Union Pacific Corp. fell 1.4 percent to the lowest since April 2013. The S&P 500 Railroads Index fell for a fifth straight day, bringing its losses this week to 4.2 percent.

American Express Co. lost 12 percent, the most in almost seven years, as fourth-quarter profit declined, driven by a drop in revenue and higher expenses. The stock traded at levels last seen in 2012.

Freeport-McMoRan Inc. dropped 9 percent, even as the raw-materials group rose 1.8 percent. The world’s biggest publicly traded copper producer is scheduled to report on Tuesday what analysts predict will be its fifth straight quarterly loss. Alcoa Inc. slipped 3.1 percent after rallying 5.2 percent yesterday.

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