S&P 500 has best 3-day rally since January on economic reports

Fed Speakers

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.”

Volatility Index

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.

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