U.S. Stock Rebound Reaches Five Weeks as Worst-Ever Start Erased

  • S&P 500 rises 1.4 percent as Fed, crude rally boost equities
  • Recovery from February low led by material, energy shares

Deep Dive: Weaker Dollar and Emerging-Market Stocks

It took took five straight weekly gains, and now investors can finally say the Standard & Poor’s 500 Index is higher for the year.

The U.S. equity benchmark added 1.4 percent in the week to erase losses incurred during the worst-ever start to a year. The Dow Jones Industrial Average capped one of the biggest turnarounds in history as it got back into the green for 2016. The weekly streak for stocks is the longest since November, when the S&P 500 emerged from its first correction in four years.

Now, as then, central banks drove the surge, with rising crude prices providing a boost. The mixture sparked demand for riskier assets, restoring more than $2 trillion to U.S. equity values just weeks after a selloff fueled fears the world’s largest economy stood on the brink of recession.

“We got way overdone to the downside in terms of negative sentiment,” said Walter Todd, who oversees about $1.1 billion as chief investment officer for Greenwood Capital Associates LLC in South Carolina. “We feel very good about the economic backdrop in the U.S. Investors clearly have a more balanced view of the world today than they did five weeks ago.”

The S&P 500 capped a 12 percent rally from Feb. 11, ending the week at 2,049.58. It’s now higher by 0.3 percent in 2016 and at the best level since Dec. 30. The Dow surged 2.3 percent in the five days, wiping out a year-to-date decline that had swelled to as much as 10 percent in February.

Equities ended the week on a three-day winning streak sparked by the Federal Reserve’s move to scale back the path for interest-rate increases, with the central bank joining counterparts in Europe and Asia in signaling that monetary policy will remain loose until global growth firms. Oil staged a 50 percent rally since falling to a 12-year low last month, briefly rising above $40 a barrel for the first time this year and easing conditions on credit markets that had been flashing warning signs.

Together, the events damped the upheaval that sent global equities into a bear market in February. Industrial and raw-materials shares paced gains during the week with advances of at least 2.3 percent, after the Fed’s signal that borrowing costs would rise more slowly pushed the Bloomberg Dollar Spot Index to an eight-month low. That bolstered demand for commodities priced in dollars and boosted the earnings prospects of companies that do business overseas.

“Many of the items that have plagued sentiment and overall equity returns, really since the beginning of the year, seem to be of less of an immediate concern,” said Terry Sandven, who helps oversee $126 billion as chief equity strategist at U.S. Bank Wealth Management in Minneapolis. “We’ve seen strength across international, U.S. large-caps and small-caps generally in-line. You’ve got strength across all sectors, led by energy.”

All of the 10 groups in the S&P 500 have posted gains of more than 5.6 percent since the index fell to a 22-month low on Feb. 11. Raw-material and energy producers led the gains, advancing more than 16 percent, with both closing at the highest levels since Dec. 4. Financial shares staged one of the biggest turnarounds. They’ve advanced 16 percent since mid-February after plummeting 18 percent in the first six weeks of the year.

The calm on the U.S. markets was also evident in measures of investor anxiety. The Chicago Board Options Exchange Volatility Index tumbled 15 percent in the week to 14.02, the lowest since Aug. 18. The VIX has dropped 50 percent since Feb. 11, and its run of five weekly declines is the longest in four years.

“The tone of the market has clearly improved since the early days of February when the market bottomed,” said Michael Sheldon, chief investment officer of Northstar Wealth Partners, which oversees $2 billion in assets in West Hartford, Connecticut. “The big story for this quarter will probably turn out to be that the U.S. economy is not heading over a cliff and that energy markets are showing signs that maybe we’re past the worst.”