Tags: stocks | Federal Reserve | rates | Ebola

Stocks Rally Most in 2014 as Rate Speculation Spurs Rebound

Wednesday, 08 October 2014 05:04 PM

The Federal Reserve’s hint that interest rates will stay near zero sent investors rushing back to the stock market, igniting the biggest rally this year for the Standard & Poor’s 500 Index.

The S&P 500 surged 1.7 percent to 1,968.89 at 4 p.m. in New York. From trough to peak, the index moved 45 points today, the most since February, data compiled by Bloomberg show. The rally recouped yesterday’s slump, when the benchmark gauge sank 1.5 percent amid concern over global growth and weaker economic data from Germany. The Dow Jones Industrial Average climbed 274.83 points, or 1.6 percent, to 16,994.22 today, the most since Dec. 18.

Minutes from the Federal Open Market Committee’s last meeting showed a number of policy makers said U.S. growth “might be slower than they expected if foreign economic growth came in weaker than anticipated.” In a statement following the September gathering, policy makers renewed their pledge to keep interest rates near zero for a “considerable time” after ending bond purchases this month. They also projected a steeper increase in borrowing costs next year.

“The market was definitely set for more hawkish Fed minutes than what this was,” said Paul Zemsky, the New York- based head of multi-asset strategies at Voya Investment Management LLC, which oversees $213 billion. “There was this concern that the Fed was on this locked-in tightening path. The minutes today show they are focusing on what’s going on overseas and how the dollar was affected by it.”

Volatility Surge

U.S. stocks have lurched back and forth for the past week, driving a measure of 10-day volatility to the highest level since April, according to data compiled by Bloomberg. The last time the S&P 500 posted back-to-back moves of more than 1 percent was in July.

The Chicago Board Options Exchange Volatility Index sank 12 percent to 15.11 today, the biggest drop since July. The gauge known as the VIX jumped 11 percent yesterday to the highest since March.

The U.S. equities benchmark began its rebound today after S&P 500 futures approached 1,918, a two-month low and a level seen as support by some technical analysts.

“The overall reaction was they aren’t going to raise rates a lot sooner and didn’t seem hawkish,” Joe Bell, a senior equity analyst at Cincinnati-based Schaeffer’s Investment Research Inc., said by phone. “This is really a reflection of the fact the market has been extremely volatile right now and this is extending that idea.”

Alcoa, Apple

Among stocks moving, Costco Wholesale Corp. gained 2.8 percent after saying profit topped forecasts. Merck & Co. and UnitedHealth Group Inc. each jumped 2.9 percent to pace gains in the Dow. Apple Inc. rallied 2.1 percent to send the Nasdaq 100 Index higher by 2.1 percent, its best advance in a year. Alcoa Inc. rose 1.6 percent at 4:27 p.m. in New York after reporting profit that topped analysts’ estimates.

The S&P 500 sank 1.5 percent yesterday to the lowest since Aug. 12 after the International Monetary Fund cut economic- growth forecasts and warned of “frothy” equities. European stocks today tumbled to a two-month low on concern that equity valuations have overshot the potential for economic growth and earnings.

The U.S. gauge has been resilient this year, with no losing streak longer than three days. The index has not fallen more than 10 percent in three years and is up 6.5 percent in 2014.

Small Caps

The Russell 2000 index jumped 1.9 percent, its best gain since June. The small-cap gauge had fallen more than 10 percent from its March record through yesterday as investors sold speculative shares.

Alcoa Inc. unofficially started the earnings season after the markets closed today. The largest U.S. aluminum producer’s results beat estimates after metal prices rose amid higher aerospace and auto demand.

Profit at companies in the S&P 500 rose 4.9 percent in the July-September period, according to the average estimate of analysts in a Bloomberg survey.

The benchmark index fell 3.3 percent in the past month through yesterday, the worst pre-earnings performance since 2009. The gauge has averaged a 2.2 percent gain in that period since the bull market began.

Costco rose 2.8 percent to $128.73. The largest U.S. warehouse-club chain posted fiscal fourth-quarter profit that topped analysts’ estimates as sales at its established stores increased.

Fast Food

Yum! Brands Inc. gained 1.5 percent to $70.74. The owner of the KFC and Taco Bell fast-food chains reduced its forecast for profit this year as another food-supplier probe hurts sales in its China division. Adjusted profit in the last quarter topped estimates.

Symantec gained 3.5 percent to $24.01 after people familiar with the matter said the software company is in advanced talks to break up its business into two entities -- one offering security programs and another focusing on data storage.

Energy producers in the gauge advanced 1 percent, reversing a drop of 1.7 percent after U.S. crude plunged to a 17-month low and Brent oil slid into a bear market.

Monsanto Co. climbed 1.8 percent to $109.73. The world’s largest seed company forecast fiscal 2015 earnings that trailed analysts’ expectations as tumbling grain prices leave farmers with less to spend.

Sears Holdings Corp. dropped 4.5 percent to $28.85. Three of the biggest insurance firms for the retailer’s suppliers are seeking to reduce coverage, prompting at least one medium-sized vendor to halt shipments to the department-store chain, people with knowledge of the matter said.

The Bloomberg U.S. Airlines Index slid 2 percent. The gauge has fallen 6.7 percent during a three-day losing streak as concern about the spread of the Ebola virus weighed on travel- related stocks. Delta Air Lines lost 1.3 percent.

The U.S. will begin Ebola screenings at five U.S. airports for some passengers from three West African nations most stricken by the disease, according to the White House.

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The Federal Reserve's hint that interest rates will stay near zero sent investors rushing back to the stock market, igniting the biggest rally this year for the Standard & Poor's 500 Index.
stocks, Federal Reserve, rates, Ebola
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2014-04-08
Wednesday, 08 October 2014 05:04 PM
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