U.S. Stocks Rise as Crude Rebound Spurs Rally in Energy Shares

Updated on
  • AIG’s best gain since 2011 sparks rally among insurers, banks
  • WTI crude jumps 3.3 percent as gasoline stockpiles fall

U.S. stocks advanced, with the S&P 500 Index halting a two-day decline, as crude oil’s biggest gain in three weeks spurred a rally in energy producers while corporate earnings helped boost financial companies.

A late-day surge pushed equities higher, with oil and gas companies rising the most in three weeks as crude jumped 3.3 percent on weekly supply data. American International Group Inc. posted its biggest gain since 2011 after its profit beat estimates. Consumer-staples shares slumped and health-care fell for a second day, with Biogen Inc. losing 2.7 percent amid doubts it could be a takeover target. Pfizer Inc. and Merck & Co. slid at least 1.1 percent.

The S&P 500 rose 0.3 percent to 2,163.79 at 4 p.m. in New York, rebounding after its steepest decline in almost a month yesterday. The gauge traded in the narrowest range in two weeks. The Dow Jones Industrial Average gained 41.23 points, or 0.2 percent, to 18,355.00, snapping a seven-session losing streak. The Nasdaq Composite Index added 0.4 percent. A Goldman Sachs Group Inc. basket of most shorted shares saw the biggest gain in five weeks, rising to a nine-month high.

“There’s slow movement in a market that’s looking for a reason to go up or go down -- it just hasn’t found any,” said Jeff Carbone, managing partner of Cornerstone Financial Partners, which oversees almost $1.1 billion in assets in Charlotte, North Carolina. “We’re seeing a little bit of a correlation back to oil in the markets coming back in play. We haven’t seen that breakout that would suggest the market is based on fundamentals, it’s still very tied to central banks.”

At 18.3 times this year’s projected earnings, the S&P 500 is still trading near its highest multiple in more than a decade. Some stronger-than-estimated financial results and speculation that central banks will maintain loose monetary policies have helped underpin equities near record levels.

But investors are looking for clearer signs of economic progress after last week’s disappointing growth report, and will continue to assess data for clues on the strength of the U.S. A gauge today of private-payroll growth last month indicated the labor market was holding up in spite of broader growth numbers that indicate a slowing in the economy. A separate report showed growth at service providers cooled in July after reaching a seven-month high.

Amid the uncertainty, traders have pushed back their expectations for the next Federal Reserve interest-rate increase. The first month with at least even odds for a hike is June 2017, compared with February a week ago. Chicago Fed President Charles Evans said today higher borrowing costs could be warranted this year as the economy picks up steam, even though he’s still worried that inflation is too low.

Earnings also remain in focus. S&P 500 companies posting results this week include Kellogg Co., Viacom Inc. and Priceline Group Inc. About 57 percent of index members that have reported so far beat sales projections, while 79 percent topped profit estimates. Analysts estimate net income at S&P 500 companies fell 3.2 percent in the second quarter.

Qorvo Slides

Among shares moving on corporate results, Qorvo Inc. dropped 10 percent, the steepest in a year, after its gross margin view for the current quarter trailed estimates, even as its profit and sales outlooks exceeded forecasts. Kate Spade & Co. plunged 18 percent after its quarterly profit missed estimates and the handbag maker cut its full-year outlook.

Intercontinental Exchange Inc. jumped 5.3 percent to a record as its results topped estimates. Time Warner Inc. added 2.7 percent as its profit exceeded analysts’ predictions and the company bought a 10 percent stake in Hulu LLC.

“I don’t see a huge move to the upside, but because of all the skepticism around I don’t see a huge move to the downside either, so I think we’re stuck in the trading range,” said Benno Galliker, a trader at Luzerner Kantonalbank AG in Lucerne, Switzerland. “After all the talk about the banks in Europe and the lower oil price, it really makes it hard for the market to move much higher in the short term. It’s a negative attitude toward the market and the economy from all over.”

Energy, Financials

In Wednesday’s trading, six of the S&P 500’s 10 main industries advanced, led by gains of more than 0.9 percent in financial and energy stocks. Consumer staples, utilities, health-care and phone companies all declined. About 6.7 billion shares traded hands on U.S. exchanges, 6 percent below the three-month average.

The CBOE Volatility Index fell 3.8 percent to 12.86. The measure of market turbulence known as the VIX yesterday capped its biggest two-day climb since the U.K.’s vote to leave the European Union.

Insurers paced gains in the financial group after AIG’s results and its plan to buy back $3 billion of stock. MetLife Inc. and Prudential Financial Inc. climbed more than 2.9 percent. Lenders marked their strongest session in three weeks as Bank of America Corp. and Citigroup Inc. increased at least 2 percent.

Marathon Petroleum Corp. and Valero Energy Corp. advanced more than 4.5 percent as crude rose for just the second time in 10 days. A weekly report showed gasoline inventories fell the most since April and refineries increased operating rates. Williams Cos. rallied 7.1 percent, bringing its two-day gain to 14 percent. Raymond James Financial Inc. upgraded the shares to the equivalent of buy from neutral.

Consumer-staples companies retreated for a second day, with Altria Group Inc. down 1.4 percent while General Mills Inc. sank 1.7 percent, the most in more than two months. The group is seeing signs of investor pessimism. Short interest on the SPDR Consumer Staples Select Sector ETF is at 7.9 percent of shares outstanding, the highest in more than a year. Traders also pulled $606 million from the fund in July, the second-biggest monthly outflow since March 2015.