U.S. Stocks Climb, Led by Energy Shares Amid Stimulus Prospects

  • ECB's Draghi highlights downside risks, potential stimulus
  • S&P 500 Index recovers from lowest level since April 2014

U.S. stocks rose, with the Standard & Poor’s 500 Index recovering from a 21-month low, as energy shares rallied with oil and the European Central Bank signaled the potential for more stimulus measures amid uncertain prospects for global growth.

Chevron Corp. climbed 2.6 percent and Home Depot Inc. surged 3.3 percent as energy and consumer discretionary companies paced the rebound from yesterday’s selloff. Verizon Communications Inc. gained 3.3 percent after its profit beat estimates. Banks in the S&P 500 slumped, with Bank of America Corp. falling 2.4 percent. Union Pacific Corp. lost 3.6 percent after its earnings missed forecasts.

The S&P 500 rose 0.5 percent to 1,868.99 at 4 p.m. in New York, trimming an earlier 1.6 percent climb in a rebound from the lowest level since April 2014. The Dow Jones Industrial Average gained 115.94 points, or 0.7 percent, to 15,882.68. The Nasdaq Composite Index was little changed after rising as much as 1.5 percent, hampered in part by Netflix Inc.’s 5 percent retreat. About 9.9 billion shares traded hands on U.S. exchanges, 32 percent above the three-month average.

“It’s good to see a reversal, to know that there are still buyers out there when things are oversold,” said Aaron Jett, vice president of global equity research at Los Angeles-based Bel Air Investment Advisors LLC. “It’s a jittery market, especially in oil. I find it difficult for people to invest long with a lot of confidence right now because there is a lot of pressure to the downside. We’re speaking with clients quite frequently -- there’s a lot of nervousness out there.”

Equities alternated for a seventh day between gains and losses amid the S&P 500’s worst start to a year since 2008. Sentiment has been weighed by concerns that the slide in crude oil and weakness in China will drag down global growth, offset by occasional bouts of optimism that policy makers will act to help stem the rout. Calling the country’s market “not yet mature,” China’s Vice President Li Yuanchao said today the government would boost regulation in an effort to avoid too much volatility.

ECB’s Draghi

European Central Bank President Mario Draghi said during a press conference Thursday that downside risks to the euro-area economy have increased since the year began, and the central bank may need to bolster its stimulus programs as soon as March amid rising concerns about the recovery. The bank kept interest rates unchanged.

Thursday’s rebound brought a respite for investors from Japan to Germany and Brazil who have watched their stock markets tumble into bear territory. The S&P 500 has fallen 8.6 percent year to date, and is down about 12 percent from a record set in May. The gauge is on track for its fourth straight weekly decline, which would be the longest streak since October 2014.

Investment managers are warning that the benchmark could drop another 10 percent and oil could fall as low as $20 a barrel. Jeffrey Rottinghaus, whose T. Rowe Price mutual fund beat 99 percent of rivals over the past year, also said the U.S. economy may slip into a mild recession.

“I think people are starting to believe that while we may not be at an absolute bottom, we may be close,” said Peter Jankovskis, who helps oversee $1.9 billion as co-chief investment officer of Lisle, Illinois-based OakBrook Investments. “Oil has been a very strong theme, though I think certainly in months that are heavy in central bank decisions that central bank activity has to a degree overwhelmed oil.”

Jobs Data

Investors are keeping close watch on progress in the economy to gauge the trajectory of U.S. interest rates before the Federal Reserve’s meeting next week. Data today showed the number of applications for unemployment benefits unexpectedly increased last week to a six-month high, indicating tempered progress in the labor market.  

Expectations for a rate hike at the Fed’s January meeting have been low since December’s increase in borrowing costs. Now, those for March are falling too, with traders trimming the chances to 20 percent, from even odds at the end of last year.

Corporate earnings may also offer cues on the strength of the U.S. economy, with the few companies that have reported so far mostly exceeding estimates. General Electric Co. is scheduled to report results on Friday. Analysts predict profits for S&P 500 members slumped 7 percent in the final three months of 2015, while sales fell 3.1 percent.

The Chicago Board Options Exchange Volatility Index fell 3.3 percent Thursday to 26.69. The measure of market turbulence known as the VIX has surged about 47 percent so far in 2016, and is on track for its biggest climb since a record-setting jump in August.

Seven of the S&P 500’s 10 main industries climbed, with energy and phone companies rising more than 2.4 percent. Consumer discretionary shares added 1.4 percent. Health-care and financial shares slipped, while utilities were little changed.

Energy Rally

The energy group reversed Wednesday’s 2.9 percent drop as crude rallied more than 4.2 percent. Devon Energy Corp. jumped 12 percent after sliding 8 percent yesterday. Kinder Morgan Inc. soared 16 percent after saying it will reduce full-year 2016 capital outlays by $900 million to cope with the collapse in commodities markets.

CBS Corp. climbed 4 percent to lead gains among consumer discretionary shares. Home Depot had its best increase in two months after the home-improvement retailer fell as much as 5.2 percent Wednesday, briefly reaching a three-month low.

Google parent Alphabet Inc. rose 1.1 percent to help boost technology companies. Semiconductor and equipment companies in the benchmark increased 1.2 percent. Xilinx Inc. rallied 8.6 percent after it amended contracts with five top executives to provide benefits in case of a change in control. Micron Technology Inc. climbed 8 percent, rising for just the second time in 11 sessions.

Banks in the benchmark slid 0.9 percent, reversing a rally of as much as 1.6 percent. Bank of America slumped for a fourth day, extending its decline to nearly 11 percent over the period. Fifth Third Bancorp fell 4.8 percent to its lowest since 2013, even as its fourth-quarter profit exceeded analysts’ estimates.

Health-care companies retraced Wednesday’s late-day gains, led by biotechnology companies. Alexion Pharmaceuticals Inc. and Biogen Inc. lost 2.7 percent. In more back-and-forth action, the Nasdaq Biotechnology Index sank 2.2 percent after rising 2.7 percent yesterday.

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