U.S. Stocks Rally for Second Day as Investors Await Fed

U.S. stocks rose for a second day, pushing the Standard & Poor’s 500 Index to its highest in June, as investors awaited the outcome of a Federal Reserve policy meeting for clues to the central bank’s plan for stimulus.

General Electric Co. and Verizon Communications Inc. rallied at least 1.7 percent, pacing gains among the largest companies. Flir Systems Inc. climbed 6.2 percent after Raymond James & Associates Inc. lifted its rating to strong buy. Walter Energy Corp. advanced 17 percent as Morgan Stanley said the coal miner’s shares may triple. Hormel Foods Corp. dropped 3.6 percent as the company cut its 2013 profit forecast.

The S&P 500 increased 0.8 percent to 1,651.81, extending its two-day rally to 1.5 percent. The Dow Jones Industrial Average gained 138.38 points, or 0.9 percent, to 15,318.23 today. About 5.7 billion shares traded hands on U.S. exchanges, or 8.6 percent below the three-month average.

“It’s like the market’s chewing on a piece of grass, trying to buy time,” John Manley, chief equity strategist for Wells Fargo Funds Management, which advises $222.7 billion in assets in the Wells Fargo Advantage Funds, said by telephone. “Of course the Fed will taper. If they don’t taper, heaven help us, but I don’t think they’ll taper one minute too soon. If they do anything, they’ll probably err on the side of caution. They’ll phase it back but only when they think they can do it safely. There are signs that it’s working.”

The Federal Open Market Committee began a two-day policy meeting today, with Fed Chairman Ben S. Bernanke holding a press conference tomorrow. Stimulus from the central bank and corporate earnings that beat forecasts have propelled the bull market in U.S. stocks into a fifth year and driven the benchmark index up 144 percent from a 12-year low in 2009.

‘Real, Sustainable’

The S&P 500 has fallen 1 percent from a record high on May 21, the day before Bernanke suggested the central bank could start to reduce bond purchases if the economy improves in a “real and sustainable way.” The gauge fell as much as 3.6 percent in the two weeks following the comments before paring the decline.

Housing starts climbed 6.8 percent in May to a 914,000 annualized rate after a revised 856,000 pace in April, the Commerce Department reported today. The median estimate of 82 economists surveyed by Bloomberg called for a 950,000 rate. Applications to build one-family homes increased 1.3 percent to a 622,000 pace, the fastest since May 2008.

“The strongest parts of the economy where we are really getting growth is autos and housing,” Joseph Veranth, chief investment officer at Dana Investment Advisors in Brookfield, Wisconsin, said by phone. The firm manages $3.9 billion. “The Fed is still worried about a number of things: low inflation, weak employment growth, weaker commodities and some weakness around the world in China and Europe.”

Railroads, Airlines

The Dow Jones Transportation Average rose 1 percent today, led by Kansas City Southern. The index of 20 stocks including railroad, shipping companies and airlines has climbed 20 percent this year, while an S&P index that tracks homebuilders is up 13 percent.

A separate report today showed the cost of living in the U.S. rose less than forecast in May, restrained by the first drop in food prices in almost four years and signaling inflation remains under control. Fed policy makers have promised to keep their target for the benchmark interest rate near zero as long as the outlook for inflation doesn’t exceed 2.5 percent and unemployment remains above 6.5 percent.

The Chicago Board Options Exchange Volatility Index, or VIX, slipped 1.1 percent to 16.61. The gauge has rallied 47 percent since hitting a six-year low in March.

American Express

All 10 industries in the S&P 500 advanced, with industrial and telephone stocks rising the most. GE gained 2.4 percent to $24.33, its highest level in more than four years. Verizon gained 1.7 percent to $51.55. The company has expressed interest in acquiring wireless carrier Wind Mobile, a move that would let the leading U.S. mobile-phone service expand into Canada, three people familiar with the matter said.

Flir jumped 6.2 percent to $26.49, the highest since March 11. The maker of night-vision cameras was lifted to strong buy from market perform by Raymond James analyst Brian Gesuale, who cited solid orders in the government division despite cuts in federal spending.

Walter Energy, a U.S. miner of coal used in steelmaking, gained 17 percent to $13.63. Morgan Stanley said the stock may climb to around $35 even if the company increases its share count by a third. The stock plunged 20 percent in the previous two days as it canceled a plan to refinance $1.55 billion of loans.

Newfield Exploration Co. jumped 4 percent to $23.94. Stifel Nicolaus & Co. analyst Amir Arif boosted his recommendation on the oil producer to buy from hold.

BlackBerry Sales

BlackBerry gained 3.8 percent to $14.84 after RBC Capital Markets raised its estimates for sales of BlackBerry 10 devices to 3.5 million units in the first quarter from 2.75 million. The brokerage boosted projections for second-quarter sales to 4 million units from 3 million.

Hormel sank 3.6 percent to $39.19 for the biggest decline in the S&P 500. The maker of Spam lunch meat cut its profit forecast for 2013 to as little as $1.88 a share after earlier predicting at least $1.93. The company cited lower-than-anticipated results in pork operations, higher costs and softer sales of retail products in its refrigerated foods segment.

Investors cut bond holdings to a near two-year low this month and bought stocks as expectations the Fed may remove monetary stimulus bolstered growth forecasts, a Bank of America Corp. survey showed.

A net 25 percent of 190 global fund managers, who together oversee about $572 billion, said they are overweight U.S. equities, meaning they hold more of the shares than are reflected in benchmarks, the highest level in 13 months.

“Investors’ sentiment has been surprisingly resilient in recent weeks despite the jump in volatility in financial markets,” New York-based Michael Hartnett, chief investment strategist at Bank of America’s Merrill Lynch unit, wrote in a note to investors today. “While our fund-flows data shows bond capitulation, the survey shows that there has been no capitulation in equities in the U.S. and Europe.”

Before it's here, it's on the Bloomberg Terminal.