U.S. stocks rallied for a fourth day, wiping out losses for the year in the Standard & Poor’s 500 Index, as the European Central Bank unveiled an expanded stimulus plan and banks and transportation companies surged on better-than-forecast earnings.
KeyCorp led gains among banks after fourth-quarter results topped analyst estimates. Southwest Airlines Co. jumped to a record as profit rose 71 percent on lower jet fuel prices. Union Pacific Corp. added 4.8 percent as a strengthening U.S. economy and growing construction market boosted traffic on the rails in the fourth quarter. EBay Inc. increased 7.1 percent after entering a standstill agreement with activist investor Carl Icahn.
“It’s that halo effect of the follow-through on ECB finally coming to the table and embracing a pretty material stimulus program,” Todd Lowenstein, who helps manage $16 billion at Highmark Capital Management in Los Angeles, said by phone. “It brings some hope that Europe will get pointed in the right direction.”
The S&P 500 gained 1.5 percent to 2,063.15 at 4 p.m. in New York, the highest since Dec. 30. The gauge climbed above its average price for the past 50 days. The Dow Jones Industrial Average climbed 259.70 points, or 1.5 percent, to 17,813.98. The Russell 2000 Index surged 2.1 percent, the most since Dec. 17. About 7.7 billion shares changed hands on U.S. exchanges today, 15 percent above the three-month average.
The Chicago Board Options Exchange Volatility Index, known as the VIX, fell 13 percent to 16.40, its lowest level of the year.
ECB Stimulus
ECB President Mario Draghi announced an expanded asset- purchase program, including private and public securities, of up to 60 billion euros ($69 billion) a month. The buying will continue through September 2016. The announcement came after the ECB kept benchmark rates unchanged at record lows.
“Markets were expecting big and this sounds like a pretty big program, so that’s good news,” Karyn Cavanaugh, the New York-based senior market strategist at Voya Investment Management LLC, said by phone. Voya oversees $215 billion. “We were all expecting it and finally we got what we were looking for.”
A near-stagnant economy and the risk of deflation forced Draghi’s hand six years after the Federal Reserve took a similar step to inject cash into the U.S. The 67-year-old Italian’s gamble is that the benefits of quantitative easing outweigh the threat of a backlash in Germany and that the ECB ends up bailing out profligate, reform-wary governments.
Global Divergence
The ECB’s shift exacerbates an emerging global divergence in monetary policy. While the Fed is now considering when to tighten credit, central banks in Denmark, Turkey, India, Canada and Peru all announced surprise rate cuts in the past week. The Swiss National Bank shocked investors by dropping a cap on the franc.
In the U.S., three rounds of Fed stimulus helped the S&P 500 more than triple from a bear-market low in March 2009. The central bank ended its quantitative easing program three months ago.
The S&P 500 has climbed 3.5 percent following its second five-day slide this year as investors have weighed earnings reports and oil held above an almost six-year low set Jan. 13. The gauge is 1.3 percent from its all-time high reached Dec. 29.
The S&P 500 has moved 1.9 percent from its lowest to highest levels on Thursday. That’s the 15th straight swing of more than 1 percent intraday, the longest stretch since an 18- day run ending on June 21, 2012, data compiled by Bloomberg show.
Market Volatility
Daily moves in the U.S. equity benchmark have almost doubled from 2014 as oil’s decline spurred concerns about deflation and earnings estimates fell the most since 2009. While investors are the most rattled they’ve been since Europe’s debt crisis more than two years ago, an accelerating U.S. economy should calm them down, according to a Jan. 20 client note from Goldman Sachs derivatives strategists.
A majority of those surveyed in a Bloomberg poll forecast that the S&P 500 will rise in the next six months, while only a quarter see it declining. The index is trading at 17 times the projected earnings of its members, according to data compiled by Bloomberg. Valuations reached a five-year high at the end of last year.
Capital One Financial Corp. and Starbucks Corp. are among 16 companies reporting earnings on Thursday. Profit at S&P 500 companies climbed 0.8 percent in the last three months of 2014, analysts predict, down from an October estimate of 8.1 percent.
Economic Data
Economic data on Thursday showed more Americans than forecast filed applications for unemployment benefits last week, a sign of lingering holiday turnover.
Leon Cooperman, who runs Omega Advisors Inc., said stocks can extend their gains as the economy improves and corporate profits rise.
“There’s no basis to call for a market peak,” Cooperman, 71, said today in an interview on Bloomberg Television with Betty Liu. “It could be a couple more years.”
Eight out 10 major industries in the S&P 500 advanced. Financial, technology and consumer-discretionary shares had the biggest gains, increasing more than 1.9 percent.
The Dow Jones Transportation Average rallied the most since October, gaining 2.9 percent. Union Pacific rose to the highest level since Dec. 30 after quarterly profit topped analysts’ estimates on higher cargo shipments.
Airline Stocks
A Bloomberg index of U.S. airlines rose 4.7 percent to the highest since January 2001. United Continental Holdings Inc. and Southwest Airlines predicted that fuel costs will be at their lowest in more than five years this quarter, helping boost profits in a period where travel demand typically slows.
JetBlue Airways Corp. surged 7.9 percent to the highest since 2007.
KeyCorp added 7.6 percent as fourth-quarter revenue and earnings topped estimates. City National Corp. surged 19 percent after Royal Bank of Canada agreed to buy the Los Angeles-based banker to the stars for about $5.4 billion. Other regional banks rallied. Regions Financial Corp., Hudson City Bancorp Inc. and M&T Bank Corp. soared more than 4.3 percent.
Larger institutions also climbed. JPMorgan Chase & Co., Bank of America Corp. and Goldman Sachs Group Inc. surged at least 2.8 percent. Banks have been the worst performers among S&P 500 groups this year, with a loss of 2.9 percent.
EBay Jumps
EBay increased 7.1 percent, the biggest gain since September. The company is cutting 2,400 positions, buying back shares and entering into a standstill agreement with Icahn as the company prepares to split its marketplace and payments businesses.
EBay also said it’s exploring options for its enterprise unit, including a sale or initial public offering, and is adding three new board members, including a representative for Icahn, who had pushed the company to split up.
Google Inc. climbed 3.2 percent and Apple Inc. advanced 2.6 percent.
Avon Products Inc. rose 15 percent, the most in the S&P 500, after dealReporter said the company has been having talks with TPG about a potential transaction, citing industry sources.
Phone companies had the biggest decline among S&P 500 groups, dropping 0.6 percent. Verizon Communications Inc., the largest U.S. wireless carrier, tumbled 0.9 percent after missing analysts’ fourth-quarter profit estimates as a surge in sales of deeply discounted phones squeezed margins. AT&T Inc. lost 0.6 percent.
American Express Co. fell 3.8 percent, the most in the Dow, after reporting a fourth-quarter profit that missed some analysts’ estimates and saying it would cut more than 4,000 jobs this year.
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