Fed officials’ rate comments help extend big stock rally
NEW YORK — U.S. stocks surged Thursday, giving the Standard & Poor’s 500 index its biggest two-day rally of 2012, on policymakers’ signals that interest rates will remain low.
The S&P 500 advanced 18.86 points, or 1.4%, to 1387.57, boosting the U.S. market benchmark’s two-day gain to 2.1%. The Dow Jones industrial average gained 181.19 points, or 1.4%, to 12,986.58. The tech-heavy Nasdaq composite index climbed 39.09 points, or 1.3%, to 3055.55.
“We have the ingredients for a better tone to the market,” says Keith Wirtz, chief investment officer for Fifth Third Asset Management. “There’s less of an overbought condition and we might have a good earnings season and a couple of Fed officials are providing some rhetoric. If we see erosion of economic conditions, it’s likely we’re going to see action by the Fed.”
Stocks rallied as Federal Reserve Vice Chairman Janet Yellen and New York Fed President William Dudley endorsed the Fed’s view that borrowing costs are likely to stay low through 2014. Those comments offset investors’ disappointment after a report showed that more Americans than forecast filed claims for jobless benefits last week.
U.S. stocks also joined a global rally as investors awaited a report due late Thursday that’s forecast to show China’s economy expanded 8.4% last quarter. The Bloomberg China-u.s. Equity index of the most-traded Chinese stocks in the U.S. added 2.6%, the most in three months.
Thursday’s gain extended this year’s advance in the S&P 500 to 10% as investors piled into stocks amid better-than-estimated economic and corporate data. While S&P 500 per-share profit growth slowed to 0.8% during the first three months of the year from 4.9% in the fourth quarter, it will accelerate to 8.3% during all of 2012, according to analyst estimates.
“It’s very difficult to kill a rally that we’ve seen over the last few months in one shot,” says Michael Shaoul, chairman of Marketfield Asset Management. “Without ‘new’ news it will be very difficult to send this market lower. Ultimately, earnings are going to be important.”
Before rebounding Wednesday, the S&P 500 had tumbled 4.3% from an almost four-year high on April 2. The retreat may not be over, as a gauge of bullishness reached levels that coincided with the market’s peak in 2007 and preceded the biggest pullback in both of the last two years. The Consensus Bullish Sentiment index on stocks, based on a weekly survey of brokerage strategists and newsletter writers, exceeded 75% for seven weeks through April 3, the longest streak since Consensus Inc. began compiling the data in 1983.