U.S. stocks rose, sending the Standard & Poor’s 500 Index to its biggest three-day rally since January, on better-than-estimated economic data and assurances on stimulus efforts from Federal Reserve officials.
All 10 industries in the S&P 500 advanced. JPMorgan Chase & Co. and Citigroup Inc. gained more than 1.4% as financial companies rallied. An S&P index that tracks homebuilders surged 2.7% as D.R. Horton Inc. and Lennar Corp. increased at least 3.7%. Time Warner Cable Inc. jumped 4.7% as billionaire John Malone was said to be exploring scenarios for how Charter Communications Inc. could acquire the company.
The S&P 500 advanced 0.8% to 1,615.99 at 3:33 p.m. in New York. The Dow Jones Industrial Average rose 144.86 points, or 1%, to 15,055. Trading of S&P 500 companies was 8.6% below the 30-day average at this time of day.
“The market was pessimistic and overreacted to the downside last week on Bernanke’s comments,” said Thomas Nyheim, a Wilmington, Delaware-based fund manager for Christiana Trust, which oversees about $16 billion. “Federal Reserve board members are coming out and saying they won’t taper quantitative easing until the last few months of this year, if this year. The market is much more pleased with what it’s hearing and now it’s retracing its gains.”
The S&P 500 has rallied 2.7% over the past three days, the most since Jan. 4 and paring its decline for June to 0.9%. The index dropped more than 5% from May 21 through June 24 as the Fed said it may reduce its bond purchases if the economy and labor market improve as forecast.
Central bank stimulus has helped fuel a rally in stocks worldwide, with the benchmark U.S. index surging as much as 147% from its March 2009 low. Despite this month’s decline, the S&P 500 is up 2.8% for the quarter and has soared 13% for 2013.
Consumer spending in the U.S. rebounded in May following the largest drop in more than three years. Household purchases, which account for about 70% of the economy, rose 0.3% after a 0.3% decline the prior month, Commerce Department figures showed today in Washington. Incomes advanced 0.5%, more than projected.
More Americans signed contracts in May to buy previously owned homes than at any time in more than six years. Claims for unemployment benefits decreased by 9,000 to 346,000 last week, indicating employers are slowing the pace of firings.
Fed Bank of New York President William C. Dudley said in prepared remarks for a speech in New York today that the central bank may prolong its asset-purchase program if the economy’s performance fails to meet its forecasts. Fed Governor Jerome Powell said in Washington that asset purchases may be scaled back later this year if growth holds up, and any such trimming depends on economic data rather than the calendar.
The comments came a day after Fed Bank of Richmond President Jeffrey Lacker said he expects the U.S. expansion to remain “sluggish” for “a couple more years.”
Data yesterday showed gross domestic product expanded at a slower-than-forecast 1.8% annualized rate in the first quarter, fueling speculation the Fed will maintain the pace of quantitative easing.
“The data continues to show that the economy is growing at a very slow pace and that unemployment is improving at a very slow pace,” Oliver Pursche, co-manager of the GMG Defensive Beta Fund and president of Suffern, New York-based Gary Goldberg Financial Services, said in a phone interview. The firm manages about $650 million. “It means the likelihood that the Federal Reserve changing course on its monetary policy this year is very low, and that further solidifies the case that last week’s correction was emotionally driven and an overreaction.”
The Chicago Board Options Exchange Volatility Index, or VIX, retreated 3.5% to 16.61. The benchmark gauge for U.S. stock options surged to the highest level since Dec. 28 last week. The index has fallen 12% this week.
Financial and phone companies advanced more than 1.1% to lead gains among S&P 500 industries. The Morgan Stanley Cyclical Index of stocks whose earnings are most tied to economic growth increased 1.2%. Hewlett-Packard Co. climbed 2.9% to $24.70. Boeing Co., the world’s largest planemaker, rallied 2.7% to $103.44.
An S&P index of homebuilders jumped 2.7% for a third day of gains, as 10 of 11 members advanced following the report on existing-home sales. D.R. Horton jumped 3.8% to $21.72. Lennar surged 3.7% to $37.34.
Financial stocks jumped 1.2% as a group. JPMorgan climbed 1.4% to $53.23. Citigroup added 1.4% to $48.28. American Express Co. rose 1.8% to $75.20.
Time Warner Cable surged 4.7% to $108.52. Malone’s Liberty Media Corp., which owns 27% of Charter Communications, is working on how to structure an offer with enough cash to win over Time Warner Cable investors, according to people familiar with the discussions. Time Warner Cable isn’t interested in a deal and doesn’t think Liberty and Charter can come up with an offer that’s attractive, according to people familiar with management’s thinking.
ConAgra Foods Inc. added 5.6%, the most in the S&P 500, to $35.21. The maker of Chef Boyardee pasta and Pam cooking spray reported quarterly profit that topped analysts estimates as acquisitions drove sales in its consumer foods unit.
Paychex Inc. dropped 4.1% to $36.45. The payrolls manager reported fourth-quarter earnings per share of 34 cents, below the average analyst estimate for profit of 37 cents. Revenue in the period was $585.3 million, missing the $586.2 million average projection.
Herman Miller Inc. declined 1% to $26.95. The office-furnishings company said it expects first-quarter adjusted per-share earnings of 36 cents to 41 cents, compared with the average analyst estimate of 46 cents.
Investors should expect about $13 billion in selling of equities and buying of bonds as pension fund managers rebalance their portfolios at the end of the second quarter, Ramon Verastegui, a derivatives strategist at Societe Generale SA in New York, wrote in a June 25 note.
The S&P 500 has outperformed government bonds since the end of March with a total return of 2.7% through yesterday compared with a 5.1% loss for 10-year Treasuries, according to data compiled by Bloomberg and Bank of America Merrill Lynch.
U.S.-listed bond mutual funds and exchange-traded funds saw record monthly redemptions of $61.7 billion through June 24, according to TrimTabs Investment Research, amid concern the Fed may scale back its unprecedented stimulus. Mutual funds that invest in U.S. stocks had $463 million in outflows in the five days that ended with the Fed’s policy statement on June 19, according to data from the Investment Company Institute released today. Redemptions since May 16 total $7.3 billion.
“The flows coming out of fixed income need to go somewhere,” Bill Schultz, chief investment officer who oversees about $1.1 billion at McQueen Ball & Associates in Bethlehem, Pennsylvania, said by phone. “Money market funds don’t offer anything, bonds are less attractive, so U.S. domestic equities on a relative scale look like the most attractive asset going forward.”