U.S. Stocks Rise as Policy Makers Signal Steps to Counter Brexit

Brexit Winners and Losers in Equities
  • S&P 500 erases June decline, rises 1.9% in second quarter
  • Equities close to wiping out losses sparked by U.K. vote

U.S. stocks climbed, with the S&P 500 Index capping a third consecutive quarterly advance, as policy makers signaled further steps to buffer the impact of Britain’s decision to leave the European Union.

Equities ended the quarter with the biggest three-day rally since February after the Brexit vote nearly derailed gains. The benchmark index climbed within 1 percent of its all-time high headed into the referendum amid signs global growth had stabilized and central banks would remain supportive. Energy producers led the advance in the period, rising nearly 11 percent as crude had its best quarter since 2009. The health-care group rose 5.8 percent, reversing most of a 5.9 percent in the first quarter.

The S&P 500 climbed 1.4 percent to 2,098.86 at 4 p.m. in New York, on top of a 3.5 percent rebound in the previous two sessions. The gauge finished the quarter up 1.9 percent and erased a June decline in the final minute of trading, rising 0.1 percent for the month. The Dow Jones Industrial Average increased 235.31 points, or 1.3 percent, to 17,929.99. The Nasdaq Composite Index added 1.3 percent. About 8.8 billion shares traded hands on U.S. exchanges, 22 percent above the three-month average.

Gains today were boosted after word the European Central Bank is considering loosening the rules for bond purchases in its stimulus program, to ensure enough debt is available to buy in the aftermath of the Brexit vote. Bank of England Governor Mark Carney also said the BOE will probably have to loosen policy within months to deal with the fallout, though he warned there’s only so much he can do to protect the economy.

“There’s no doubt that central bankers are helping to underpin this market and take some of the risk out,” said Quincy Krosby, a market strategist at Prudential Financial Inc., which oversees about $1.2 trillion. “This is a commitment from central banks to keep the liquidity flowing into the market, and that’s crucial. Nonetheless, you’ve got to respect the fact that it’s the end of the quarter and half year, and rebalancing is taking place.”

A global rally lifted equities in the prior two days, returning the S&P 500 to an annual advance, as central banks reassured investors that they’re ready to increase stimulus after the U.K.’s vote. The outcome of the referendum had sparked a two-day selloff, the worst for the benchmark in 10 months, that wiped as much as $3.6 trillion from stocks worldwide.

The CBOE Volatility Index saw its fourth-straight decline today, the longest in a month, pushing the measure of market turbulence known as the VIX to a three-week low. Still, investors remain on alert with Britain in limbo as its leaders fight to see who will succeed David Cameron as prime minister, preventing the country from entering talks to determine its future relationship with the EU.

Consumer staples shares led a third day of gains, bolstered by a 17 percent surge in Hershey Co. after a report Mondelez International Inc. made a takeover bid for the chocolate maker. Utilities increased for a sixth day, the longest since March, with investors tilting toward defensive assets even after the strongest two-day climb in four months. Phone companies rose to the highest level since 2001.

“The majority of U.S. investors are of the belief that the selloff in U.S. markets post-Brexit was a little bit overdone,” said Michael James, managing director of equity trading at Wedbush Securities Inc. in Los Angeles. “You had positive stress test reports with raised buybacks and dividends from the majority of money center banks last night, which has added to overall positive sentiment. Any time there’s M&A, those types of transactions provide positive sentiment for the market overall.”

While the turmoil interrupted the S&P 500’s march to an all-time high -- a move propelled by optimism over a combination of low rates and moderate growth -- it has also prompted traders to push back bets the Federal Reserve will raise borrowing costs any time soon. They now indicate a rate boost is unlikely before 2018.

Trimming Losses

The S&P 500 is 0.7 percent below its June 23 level after the rebound from a 5.3 percent two-day selloff. The gauge erased its June decline to finish little changed after coming within 1 percent of a record twice this month. While the index rose 1.9 percent in the quarter, analysts forecast S&P 500 companies will report a 5.3 percent drop in earnings for the period, a fifth straight decline.

Exxon Mobil Corp. and Chevron Corp. have bolstered energy shares in the benchmark since the end of March, with the two rising at least 9.8 percent on the way to a third quarterly gain, the longest since 2011. Exxon Mobil reached an 18-month high on Thursday.

Meanwhile, technology companies were the S&P 500’s worst performers in the second quarter, dragged down by declines in heavyweights Microsoft Corp., Apple Inc. and Google parent Alphabet Inc. Disappointing earnings from the trio of tech giants sent their shares tumbling in April, taking the steam out of an equity rebound after the S&P 500 had rallied as much as 15 percent from a 22-month low in February.

In Thursday’s trading, all of the S&P 500’s 10 main industries rose, with consumer staples, industrials and utilities gaining more than 2 percent. A Goldman Sachs Group Inc. basket of the most shorted shares in the Russell 3000 Index was in the midst of its strongest three-day climb since February, up 9 percent.

Consumer Staples

Consumer staples climbed 2.2 percent, the most in almost seven months, to a fresh record, spurred by the report of Mondelez’s bid for Hershey. Hershey confirmed it received an offer which it rejected. The shares soared as much as 21 percent, the most in nearly 14 years, to an all-time high. Mondelez advanced 5.9 percent, the most since 2014, and erased losses that followed the U.K. referendum.

PepsiCo Inc. added 2.7 percent, the best since October. Philip Morris International Inc. and the Coca-Cola Co. increased at least 2 percent.

The industrials group erased a quarterly slide in the period’s final session after rallying 5.5 percent in three days. General Electric Co. was the biggest driver, gaining 7.4 percent since Monday’s close on the way to a three-month high. 3M Co. and Boeing Co. rose at least 2.1 percent Thursday.

Utilities reached a fresh all-time high with the group marking a fourth-straight quarterly gain, the longest since 2011. American Water Works Co. led the pack since March with an almost 23 percent climb. NextEra Energy Inc. has been the group’s strongest contributor to the second-quarter increase, rising 10 percent.

Banks in the benchmark index salvaged a 1 percent quarterly gain, after rallying 7.3 percent in June’s final three sessions. U.S. Bancorp and JPMorgan Chase & Co. added more than 1.5 percent today.

Among other shares moving on corporate news, Starz rose 5.9 percent after Lions Gate Entertainment Corp. agreed to buy billionaire John Malone’s cable outlet in a deal valued at $4.4 billion. Lions Gate slipped 3.4 percent.

Visa Inc. slumped 3.4 percent and MasterCard Inc. tumbled 4.4 percent after a court rejected a $5.7 billion settlement of claims the firms improperly fixed credit-card swipe fees, potentially renewing years of litigation with millions of U.S. merchants.

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