U.S. Stocks Add to 8-Week Highs as Banks, Energy Continue Rally

  • Equities follow undulations in crude after Tuesday surge
  • Monsanto shares tumble after cutting profit forecast

U.S. stocks advanced, extending their eight-week highs, with banks and energy shares rallying for a second day as improving data bolstered optimism on the economy.

Equities pressed higher in the final hour of trading after swinging between gains and losses for most of the session. Bank of America Corp. increased 2.1 percent to a one-month high, on top of a 5.4 percent gain yesterday, while Exxon Mobil Co. added 1.8 percent. Monsanto Co. fell the most in more than five years after cutting its profit forecast.

The Standard & Poor’s 500 Index rose 0.4 percent to 1,986.45 at 4 p.m. in New York, holding at the highest since Jan. 6. The Russell 2000 Index of small caps jumped 1.1 percent. The Dow Jones Industrial Average added 34.24 points, or 0.2 percent, to 16,899.39, and the Nasdaq Composite Index increased 0.3 percent. About 8.3 billion shares traded hands on U.S. exchanges, in line with the three-month average.

“It was the more cyclical businesses that bounced back today,” said Terry Morris, a senior equity manager who helps oversee about $3.2 billion at Wyomissing, Pennsylvania-based National Penn Investors Trust Co. “The market ended up technically oversold a couple weeks ago, so the market was ripe to snap back, and we saw a continuation of that today. The fact that energy has stabilized has been enough to help the market turn up.”

A report today showed companies in the U.S. added more workers than forecast to their payrolls, another positive signal on the economy after gauges showing stability at American factories, major carmakers and in the public and private construction industries helped spur a rally yesterday. The improving data has also raised the odds the Federal Reserve will boost borrowing costs this year.

The S&P 500 has trimmed its 2016 decline to less than 3 percent, from more than 10 percent, amid a recovery from a 22-month low on Feb. 11. Banks, consumer and technology companies have helped boost the comeback. The benchmark is down 6.8 percent from an all-time high reached last May.

The Chicago Board Options Exchange Volatility Index slipped 3.5 percent Wednesday to 17.09, with the measure of market turbulence known as the VIX dropping to the lowest level since Dec. 29.

In Tuesday’s votes, Donald Trump and Hillary Clinton solidified their positions in the race to their parties’ presidential nominations. The impact on trading was muddied as global equities rebounded on the U.S. economic data and amid stability in China markets that spurred risk-taking.

The eighth year of a presidency typically ranks last in terms of equity returns, and the first half of an election year is often even worse. Add everything else that has been weighing on markets in 2016, from China to oil and the Fed, and few money managers see a return to the relative calm that reigned from 2012 to 2015.

“There will continue to be a lingering concern regarding who the Republican Party will nominate,” said Chad Morganlander, a money manager at Stifel, Nicolaus & Co. in Florham Park, New Jersey via e-mail. “We expect as the months draw closer to the general election certain sectors performance will improve. Look for a bullish change in sentiment toward the health-care sector as jitters and uncertainty subside.”

Beige Book

A Fed report today showed the U.S. economy continued to expand across most of the country, while wage growth was described as varying widely, “from flat to strong.” Seven of the Fed’s 12 regional districts characterized the economy as growing “moderately,” at a “modest pace” or “slightly,” according to the central bank’s Beige Book, an economic survey published eight times a year.

Separately, San Francisco Fed President John Williams said today domestic demand is overwhelming weakness from abroad, and inflation should move back to the central bank’s 2 percent target over the next two years. Traders have raised the odds for rate increases this year, pricing in a 38 percent probability for a June boost in borrowing costs, up from about 26 percent a week ago. Chances for a December move have increased to 65 percent from 42 percent last Wednesday.

“People were saying for a long time that while the stock market wasn’t doing well, the underlying economy was still doing well,” said Joe Bell, a Cincinnati-based senior equity analyst at Schaeffer’s Investment Research Inc. “We’re seeing proof of that now. It’ll be interesting to see if data continues to improve, and how that affects Fed decision-making. We’re starting to see people talk about an accelerated Fed rate hike schedule.”

Banks, Materials

Eight of the S&P 500’s 10 main industries increased today, with energy and financial stocks gaining for a second straight day to lead the advance. Raw-material and consumer discretionary companies were the only two groups to decline.

Energy companies in the benchmark stock index climbed 2.5 percent, the most in two weeks, to extend a two-day increase to 4.7 percent. Crude oil rose 0.8 percent to the highest in almost two months after a government report showed U.S. refineries boosted their use of crude. Marathon Oil Corp. and Devon Energy Corp. advanced more than 11 percent.

Chesapeake Energy Corp. surged 23 percent, the most in more than seven years. Co-founder Aubrey McClendon, who was ousted three years ago, was killed in a car crash in Oklahoma City Wednesday, police said. His death comes a day after he was charged with rigging bids for oil and natural gas leases.

Banks continued to recover from their lowest levels since 2013, with lenders in the S&P 500 up nearly 14 percent since Feb. 11. Citigroup Inc. and Wells Fargo & Co. gained at least 1.7 percent. The KBW Bank Index advanced 1.8 percent to an almost seven-week high.

The S&P 500 Information Technology Index was little changed after erasing a 0.6 percent drop. EBay Inc. and Skyworks Solutions Inc. lost more than 2 percent. Even as Skyworks declined, an index of semiconductor companies in the benchmark increased 0.5 percent, with Micron Technology Inc.’s 5.5 percent gain.

Materials shares in the benchmark index dropped 0.4 percent. Monsanto Co. plunged 7.8 percent to a five-month low after the world’s largest seed producer cut its full-year profit forecast. Chief Executive Officer Hugh Grant said the company may have to push back its long-term profit target to early in the next decade amid pressures from weak agricultural markets. Sherwin-Williams Co. and CF Industries Holdings Inc. declined at least 2.6 percent.

Consumer discretionary companies closed little changed, paring a 0.8 percent slide. Dollar Tree Inc. fell 4 percent after its rating was cut to market perform from strong buy at Raymond James Financial Inc. The company has gained 28 percent since falling to a one-year low in October. Royal Caribbean Cruises Ltd. and AutoNation Inc. slipped more than 1.7 percent. Homebuilders Lennar Corp. and PulteGroup Inc. added at least 2 percent.

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