S&P 500 Rises to 7-Week High as Bank, Tech Shares Boost Rally

  • Equity benchmark wipes out February losses that approached 7%
  • Capital goods orders increase by the most since June 2014

What Will Stabilize Oil Prices?

Gains in bank and technology shares helped send the Standard & Poor’s 500 Index to a seven-week high, amid optimism on the economy after data indicated weakness in manufacturing may be easing while crude oil showed further signs of stabilizing.

Lenders resumed their role as rally leaders, rising for the first time in three days after bolstering the equity rebound last week, with Bank of America Corp. up 1.6 percent. Microsoft Corp. and Intel Corp. added 1.4 percent to boost tech. Energy producers erased declines as crude wiped out losses. United Technologies Corp. stretched its increase this week to 11 percent amid talk of a possible merger with Honeywell International Inc.

The S&P 500 climbed 1.1 percent to 1,951.70 at 4 p.m. in New York, with the gauge erasing its February decline to advance 0.6 percent for the month. The Dow Jones Industrial Average added 212.30 points, or 1.3 percent, to 16,697.29. The Nasdaq Composite Index increased 0.9 percent. About 7.3 billion shares traded hands on U.S. exchanges, 11 percent below the three-month average.

“We got some good news this morning from jobless claims and durable goods orders that came in noticeably stronger than expected,” Alan Gayle, senior strategist for Atlanta-based Ridgeworth Investments, which has about $42.5 billion in assets, said by phone. “We had some encouraging macro news that gave the markets the impetus to move higher, particularly on the back of yesterday’s close. After a tough down market, there’s some budding optimism that the worst is perhaps over.”

The main U.S. equity benchmark eliminated this month’s slide after losing as much as 6.7 percent at the close on Feb. 11. The S&P 500 continued its rebound from a nearly two-year low and has cut its 2016 drop by more than half. The index also topped its average price during the past 50 days for the first time this year, after last closing above the technical level on Dec. 29.

U.S. equities broke higher in the early afternoon after struggling for direction throughout the morning amid conflicting signals abroad. China’s stocks tumbled the most in a month as surging money-market rates signaled tighter liquidity. Meanwhile, European shares rallied, pace by Lloyds Banking Group Plc, with the Stoxx Europe 600 Index rising 2 percent. Concern that a slowdown of the Chinese economy is deepening, compounded by falling commodity prices led by crude, has roiled equity markets since August.

Tumbling oil prices, tighter credit conditions and a flatter yield curve spurred Wells Fargo Securities LLC strategist Gina Martin Adams to lower her S&P 500 target to 2,100, down from a previous call of 2,245. “Stocks will move higher over the next 12 months, but perhaps not as robustly as we forecast in early December,” Martin Adams wrote in a research note to clients Thursday. “There is likely also a lid on multiples given deteriorating credit quality.”

While the S&P 500’s valuation of 16.3 times the forecast earnings of its members is above the 15 times average of the past five years, the measure is down 6.8 percent since the start of the year. The gauge remains more expensive than developed markets in Europe, where the Stoxx 600 Index trades for 14.6 times estimated earnings.

Durable Goods

Investors are scrutinizing economic data to gauge growth in the world’s largest economy, and a report today showed orders for U.S. capital goods rebounded in January by the most since June 2014. Orders for all durable goods rose 4.9 percent, the most since March. Separate data showed the number of Americans filing applications for unemployment benefits rose last week from a three-month low, in part reflecting the typical swings during holiday periods.

“The data on durable goods will help assuage fears that a recession is lurking,” Quincy M. Krosby, a market strategist at Prudential Financial Inc., which oversees about $1.2 trillion, said by phone from Newark, New Jersey. “If we can get some more data releases showing some less bad data or stabilization it may help push us higher. The market is craving that right now.”

With the earnings season wrapping up, about three-quarters of S&P 500 firms have exceeded profit projections, while less than half topped sales forecasts. Analysts estimate earnings at S&P 500 companies fell 4.2 percent in the fourth quarter, compared with Jan. 15 predictions for a 7 percent slump.

The Chicago Board Options Exchange Volatility Index fell 7.8 percent to 19.11 Thursday. The measure of market turbulence known as the VIX erased a 9 percent intraday jump yesterday, and is now down 5.4 percent this month after rising more than 39 percent as of Feb. 11.

Tech, Banks

All of the S&P 500’s 10 main groups rose, with financial, tech, health-care and raw-materials shares up at least 1.2 percent. Energy stocks were little changed after reversing a drop of at least 1.9 percent for a second day.

JPMorgan Chase & Co. and Citigroup Inc. added more than 1.3 percent to help drive banks higher. Zions Bancorporation rebounded 2.7 percent after a two-day tumble of 6.9 percent, the best performer today among lenders in the S&P 500. In the broader financial group, Morgan Stanley gained 3.9 percent and Goldman Sachs Group Inc. rose 1.9 percent, its third advance in four days.

Salesforce.com’s 11 percent rally led the benchmark gauge and was the strongest among technology companies. The shares rose the most since April after the software company issued a forecast that easily topped estimates, giving investors another sign that the cloud-computing pioneer will be able to weather economic headwinds. Adobe Systems Inc. increased 3.9 percent, the most in a month.

Raw-material companies surged 1.3 percent, with fertilizer maker CF Industries Holdings Inc. rising the most, up 4.4 percent. DuPont Co. and Dow Chemical Co. both added at least 1.9 percent.

Defensive companies also gained traction, as consumer staples shares rallied to the highest ever and utilities rose for a fourth straight day, sending the group to its highest level in more than a year. Within staples, Campbell Soup Co. increased 3.5 percent to a record after reaffirming its full-year profit outlook.

Energy producers erased losses on crude’s second-straight reversal. Newfield Exploration Co. rallied 4.2 percent after a better-than-estimated quarterly profit. Ensco Plc fell 4.8 percent to a 20-year low after the company slashed its quarterly dividend yesterday. The stock has slid nearly 10 percent in three sessions.

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