Markets rally as investors look to Fed for boost
NEW YORK - Stocks rallied yesterday, driving the Standard & Poor’s 500 index up from the cheapest valuations since 2009, as weaker-than-estimated economic data reinforced optimism the Federal Reserve will act to spur growth.
The S&P 500 rose 3.4 percent to 1,162.35 for the biggest rally since Aug. 11. All 10 industries in the benchmark gauge rose, with gains ranging between 1.8 percent and 4.6 percent. The Dow Jones industrial average added 322.11 points, or 3 percent, to 11,176.76.
“There’s plenty of evidence that the economy has slowed,’’ Kevin Caron, market strategist in Florham Park, N.J., at Stifel Nicolaus said in a telephone interview. “The speculation would be that it’s possible that the Fed will say something designed to calm markets and provide a bit of encouragement.’’
Equities advanced after the Richmond Fed’s business activity index dropped to minus 10 in August, the weakest since June 2009. The monthly survey of producers in the region covering the Carolinas, Maryland, Virginia, and West Virginia corroborated factory reports from Philadelphia and New York that pointed to weakness in the industry. Also, the Commerce Department said sales of new US homes declined more than projected in July to the lowest level in five months.
Stocks briefly pared gains after a 5.8-magnitude earthquake in Virginia shook Washington and New York.
Central bankers from around the world meet this week in Jackson Hole, Wyo. During last year’s conference, Fed chairman Ben Bernanke signaled a second round of asset purchases, known as QE2, that buoyed asset markets. The S&P 500 rose 28 percent between Aug. 26, 2010, and Feb. 18 after he foreshadowed the $600 billion Treasury program.
Bernanke “probably feels some pressure from the stock market to respond,’’ Howard Ward, a money manager at Mario Gabelli’s Gamco Investors, said on Bloomberg Television. “He should lay out a game plan of what he can do should the economic outlook warrant that.’’
Companies whose earnings depend on economic growth, including energy, tech, consumer and industrial shares, had the biggest gains in the S&P 500, rising at least 3.5 percent. Monsanto rallied 5.9 percent to $69.12. Chevron gained 4.3 percent to $97.33. Microsoft added 3.1 percent to $24.72.
Financial shares in the S&P 500 reversed a 1.3 percent loss, rising 3.2 percent. Bank of America fell 1.9 percent to $6.30. The lender that lost half its market value this year has sufficient capital to weather mounting costs tied to souring loans, said Richard Bove, an analyst at Rochdale Securities.
The S&P 500 fell 18 percent on April 29 through Aug. 8 amid concern Europe’s debt crisis and a downgrade of the nation’s credit rating would hurt the economy.