U.S. Stocks Rally Most in 2014 as Fed Bets Spur Rebound

U.S. Stocks Rally Most in 2014 as Fed Bets Spur Rebound

Bloomberg

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 (SPX) surged 1.7 percent to 1,968.70 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 273.61 points, or 1.6 percent, to 16,993 today, the most since Dec. 18.

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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 Fed is telling us if they raise rates it’s because of a good economy,” John Canally, an economic strategist at LPL Financial Crop. in Boston, said in a phone interview. “If you’re up on stocks it’s because it’s more of the same from the Fed, not lurching closer to a rate hike.”

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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 (VIX) 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.

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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.

Among stocks moving, Costco Wholesale Corp. (COST) gained 2.8 percent after saying profit topped forecasts. Merck & Co. and UnitedHealth Group Inc. added at least 2.8 percent to pace gains in the Dow Jones Industrial Average. Apple Inc. rallied 2.1 percent to send the Nasdaq 100 Index higher by 2.1 percent, its best rally in a year.

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.

Appropriate Guidance

The Russell 2000 index jumped 2 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 starts the earnings season after the close of markets today. 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.

To contact the reporter on this story: Oliver Renick in New York at orenick2@bloomberg.net

To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.netJeremy Herron, Michael P. Regan

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