U.S. Stocks Rally as Banks Lead S&P 500 Index to Eight-Week High

  • Citigroup rises amid earnings as bank shares rebound
  • S&P 500 Index also boosted by biotechs, energy shares

U.S. stocks advanced for the first time in three days as bank shares rebounded amid Citigroup Inc.’s better-than-estimated results, touching off a rally that sent the Standard & Poor’s 500 Index to an eight-week high.

The mood toward bank stocks had an about-face since yesterday, lifting equity market sentiment as Citigroup’s 4.4 percent climb paced banks’ best gain in more than a month. Biotechnology shares continued a rebound from Tuesday’s selloff, while energy jumped without help from oil prices. Netflix Inc. slumped after its U.S. subscriber growth missed analysts’ forecasts, while Wal-Mart Stores Inc. fell again after its worst drop since 1988.

The S&P 500 Index gained 1.5 percent to 2,023.86 at 4 p.m. in New York, closing at its highest level since Aug. 20. The Dow Jones Industrial Average added 217 points, or 1.3 percent, to 17,141.75. The Nasdaq Composite Index climbed 1.8 percent, with Apple Inc. and Amazon.com Inc. up more than 1.5 percent. About 7.1 billion shares traded hands on U.S. exchanges, 3.7 percent below the three-month average.

“The best way to describe the bank earnings is they didn’t rock the boat,” said Michael Antonelli, an institutional equity sales trader and managing director at Robert W. Baird & Co. in Milwaukee. “Expectations around timing of the Fed action is really the prime driver of sentiment and the market right now. The Fed is the 800-pound gorilla.”

Equities are rebounding from their worst quarter in four years, with investor sentiment weaving from worries that a slowdown in China will spread, to reassurance that the Federal Reserve will be slow to raise interest rates until policy makers are more confident that overseas turbulence won’t derail U.S. growth and inflation will reach their 2 percent target. The S&P 500 is up 5.4 percent this month, and has rallied 8.4 percent from the low during an August selloff.

A report today showed consumer prices excluding food and fuel rose more than forecast in September, propelled by rising rents. Plunging energy expenses caused total costs to decrease by the most since January. A separate report showed the number of Americans submitting applications for jobless benefits unexpectedly declined last week to match the fewest in four decades, bringing the monthly average to its lowest level since December 1973.

A worse-than-forecast U.S. retail sales report yesterday compounded pessimism from disappointing data on China’s economy, sending the probability of the Federal Reserve raising interest rates by January to 39 percent, from 47 percent last week. March resumed as the first month for which traders are pricing in at least even odds of a liftoff, after those bets had been pushed to April before today’s data.

Fed Watch

Fed Bank of New York President William C. Dudley said today that he favors raising interest rates later this year if his forecast is met. Debate among policy makers has gone increasingly public in recent days, with cautious comments by Fed governors Lael Brainard and Daniel Tarullo that argued for patience on liftoff.

Earnings season is beginning to compete more aggressively against the Fed for investors’ attention. Analysts forecast profits for S&P 500 members dropped 7.2 percent in the third quarter. Disappointing results from JPMorgan Chase & Co. and Wal-Mart’s shock forecast that next year’s profit will slump dragged equities lower yesterday. General Electric Co. and Honeywell International Inc. are due to report results tomorrow.

The Chicago Board Options Exchange Volatility Index fell 11 percent Thursday to 16.05, its lowest since Aug. 19. The measure of market turbulence known as the VIX is down 34 percent this month, the most since February.

Banks Rally

Bank stocks in the S&P 500 had their strongest gain in almost two months amid today’s earnings results. KeyCorp rose 4.7 percent, the most in seven weeks, after matching profit estimates while net interest margins were better than expected. JPMorgan, the biggest U.S. bank, rebounded 3.2 percent to wipe out Wednesday’s drop when its quarterly results disappointed. Bank of America Corp. added 3.5 percent.

Even Goldman Sachs Group Inc. joined the financial sector rally, rising 3 percent despite third-quarter results falling short of analysts’ estimates for the first time in four years. Net income fell 36 percent from a year earlier, while net revenue was below $7 billion for the first time in two years.

Biotechnology shares climbed for a second day, erasing a selloff on Tuesday to lead health-care higher. Amgen Inc., Biogen Inc. and Gilead Sciences Inc. all increased at least 3.2 percent. Pfizer Inc. and Merck & Co. gained more than 2.3 percent. The Nasdaq Biotechnology Index climbed for a second day, adding 4.4 percent.

Energy Advances

Energy companies in the benchmark index rose 1.6 percent, despite crude oil slipping for a fourth day amid the biggest increase in stockpiles in six months. Exxon Mobil Corp. gained 1.7 percent. Valero Energy Corp. and Southwestern Energy Co. increased more than 3.1 percent.

Seagate Technology Plc was among the leading losers in the benchmark with a 13 percent tumble, the most since 2011. The hard-drive maker’s preliminary quarterly revenue fell short of analysts’ estimates. Consumer electronics company Garmin Ltd. dropped nearly 13 percent to a four-year low after cutting its earnings outlook. 

Netflix fell 8.3 percent, the most in a year after falling short on two important measures: subscriber growth and programming expenses. Blaming the slump on new credit and debit card technology, the online video service still expects to finish 2015 with net additions of about 6 million subscribers in the U.S., the fourth straight year of such gains.

Valeant Pharmaceuticals International Inc. fell 4.8 percent, as the company faces subpoenas seeking information on drug pricing. The subpoenas renew concerns that Valeant and other drugmakers will face continued political scrutiny over drug prices.

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