- Bank of Japan stimulus boosts equities; U.S. growth cools
- S&P 500 Index posts best one-day rally since September
U.S. stocks ended the worst January since 2009 with the best one-day gains in more than four months, after earnings from Microsoft Corp. exceeded expectations and the Bank of Japan stepped up monetary stimulus.
The equity rally accelerated in the final hour of trading, with the strong finish a fitting end to a weak month that featured sharp reversals on an almost daily basis. Microsoft led the surge Friday with its biggest gain in three months. Nine of the S&P 500’s 10 main groups rose at least 1.7 percent. Amazon.com Inc. was a blemish, tumbling 7.6 percent as earnings for the holiday quarter missed estimates.
The Standard & Poor’s 500 Index rose 2.5 percent to 1,940.24 at 4 p.m. in New York, the strongest advance since Sept. 8. Still, the gauge slumped 5.1 percent for the month, its worst start to a year since the height of the financial crisis. The Dow Jones Industrial Average advanced 396.66 points, or 2.5 percent, to 16,466.30, its best day in five months. The Nasdaq Composite Index added 2.4 percent, still finishing with its worst month since May 2010. The Russell 2000 Index jumped 3.2 percent, capping its worst month since 2011 with its biggest rally in four years.
“Part of the strength in the markets today is central banks in the developed world being accommodative, and the other is a surprisingly strong Chicago manufacturing number that was really a blowout,” said Phil Orlando, who helps oversee $360 billion as chief equity-market strategist at Federated Investors Inc. in New York. “Earnings have been better than expected so far.”
Stocks swung between gains and losses this week as investors assessed corporate earnings and the degree to which central banks will intervene to help stem increasing volatility and a dimming outlook for global growth. The S&P 500’s rally Friday lifted it to a second consecutive week of gains for the first time since Dec. 4.
Prior to today’s unexpected action from the Bank of Japan to adopt a negative interest-rate strategy, the European Central Bank signaled last week it could boost stimulus as soon as March. The Federal Reserve said Wednesday it was watching to see how the global economy and markets impact the U.S. outlook.
Data today showed the economy expanded at a slower pace in the fourth quarter, in line with forecasts, as households tempered spending while businesses cut back on capital investment and made further adjustments to inventories. A separate report showed consumer confidence cooled in January, shaken by the stock-market downturn, while a gauge on Chicago-area manufacturing jumped more than forecast to the highest in a year.
“With today’s GDP there’s modest economic growth and Japan overnight pursuing lower interest rates means the Fed is not likely to raise four times this year,” said Michael Arone, the Boston-based chief investment strategist at State Street Global Advisors’ U.S. Intermediary Business. “Events like what happened with Japan going to negative interest rates puts downward pressure on our own interest rates and impacts the Fed’s ability to raise rates.”
Investors are also scouring earnings for indications on how well U.S. companies are weathering weakness emanating from China. Analysts estimate profits at index members fell 5.6 percent in the fourth quarter, better than predictions two weeks ago that called for a 7 percent slump. Of those that have already posted results, 80 percent beat earnings projections, while 48 percent have exceeded sales estimates.
Among companies moving after their reports today, Honeywell International Inc. rose 5.3 percent to pace gains in the S&P 500’s industrial group after its aerospace sales increased and the company reiterated its 2016 outlook. Visa Inc. climbed the most in 15 months after its profit exceeded estimates as consumer card spending increased. Video-game publisher Electronic Arts Inc. sank 7.5 percent after forecasting fiscal fourth-quarter results that fell short of estimates.
Anxiety fueled by China’s slowdown and a rout in oil prices have battered stocks since the start of the year. The rout has pushed valuations down to 2014 levels and erased more than $2 trillion from the value of American equity markets. The S&P 500 is down 8.9 percent from its record set in May, after climbing 4.4 percent from a 21-month low reached on Jan. 20.
The Chicago Board Options Exchange Volatility Index fell 9.9 percent Friday to 20.20, a three-week low. The measure of market turbulence known as the VIX increased 11 percent in January, after rising as much as 52 percent for the month. About 10.1 billion shares traded hands on U.S. exchanges, 31 percent above the three-month average.
Technology companies rallied Friday to the biggest one-day climb in five months, bolstered by Microsoft’s gains. The group rose 3.6 percent to lead the S&P 500’s 10 main industries. Raw-material, financial and industrial shares each added at least 2.7 percent. Phone companies had the best performance this month, up 5.5 percent, while raw-materials were the worst, losing almost 11 percent.
Joining Microsoft to power the tech group, Apple Inc. increased 3.5 percent to trim its drop this week, while Facebook Inc. and Google parent Alphabet Inc. advanced more than 1.7 percent. Hard-drive maker Seagate Technology Plc capped its biggest rally in more than three years after reporting sales that beat some analysts’ predictions amid a tough market for computer components.
Semiconductor and equipment companies posted their steepest climb since September, rising 4 percent. Micron Technology Inc. and Qorvo Inc. led with gains of more than 7.9 percent. Intel Corp. rose 3.5 percent, the most since August.
In addition to the boost from Honeywell, 3M Co. rose for a fourth day to help lift industrials to the best gain in more than three months. 3M increased 8.2 percent this week, its best since 2009, after the company reported better-than-estimated results on Tuesday. General Electric Co. added 3.2 percent, the most since October.
Energy companies in the benchmark climbed to a three-week high. Consol Energy Inc., the second-biggest loser in the S&P 500 last year, surged 18 percent, even after its quarterly loss was wider than estimated. Kinder Morgan Inc. added 7.6 percent. Phillips 66 rose 1.8 percent, erasing a 3.7 percent drop. The largest U.S. independent refiner by market value reported a decline in profit as refining margins narrowed.
Consumer discretionary companies advanced 1.2 percent, overcoming the drag from Amazon’s biggest drop since October 2014. Home Depot Inc. and Walt Disney Co. added at least 2.4 percent to help boost the group.