Relief rally spreads across markets as oil jumps most in 6 years

NEW YORK – A relief rally swept around the globe, with the Standard & Poor’s 500 Index capping its biggest two-day gain since 2009 and Chinese shares snapping a five-day losing streak. Oil jumped the most in over six years as the U.S. economy grew more than forecast in the second quarter.

The S&P 500 briefly pared gains in late afternoon trading, cutting an advance of as much as 2.5 percent to less than 0.5 percent before reversing course and rallying again, indicating markets are still vulnerable to sudden swings.

Shares surged from Asia to the U.S. after the biggest advance in the S&P 500 in four years on Wednesday helped restore some appetite for riskier assets. The rally halted the selloff that’s engulfed markets since China devalued its currency on Aug. 11, stoking concern the slowdown in the world’s second-largest economy threatened global growth.

“We got our pullback, and now we’re going to focus on U.S. things like GDP and the Fed,” said John Canally, chief economic strategist at LPL Financial Corp. in Boston. “When you’re in a correction, it’s not fun, but when you’re out, you can refocus on what matters.”

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A better-than-expected gross domestic product revision bolstered confidence in the outlook for the American economy as the Federal Reserve prepares to raise interest rates for the first time in almost a decade. Meanwhile, Chinese stocks surged in the last hour of trading as people familiar with the matter said the government stepped in to shore up prices.

The S&P 500 advanced 2.4 percent at 4 p.m. in New York, after yesterday’s 3.9 percent surge. The two-day gain was the biggest since the bull market began more than six years ago. The rally halted a six-day plunge that wiped out $2.2 trillion and sent the S&P 500 into a correction.

The Dow Jones Industrial Average gained 369.26 points, 2.27 percent, to end at 16,654.77. The NASDAQ Composite Index gained 2.45 percent to end at 4,812.71. The Stoxx Europe 600 Index climbing 3.5 percent. A gauge of commodities rebounded from a 16-year low as oil soared 10 percent. The Bloomberg Dollar Spot Index rose 0.2 percent.

U.S. stocks pulled back from their highs after 2:00 p.m., trimming gains to 0.4 percent before jumping back near their previous highs by the close. The retreat came on a day when JPMorgan Chase & Co. derivatives strategist Marko Kolanovic warned that “price insensitive” program traders are likely to cause repeated selloffs in coming days.

‘Abnormal’ trading

“This is abnormal-type trading,” said Walter “Bucky” Hellwig, who helps manage $17 billion as a senior vice president at BB&T Wealth Management in Birmingham, Ala. “I think in a volatile market like this, you can see an inordinate number of buys or sells at the open or close.”

Such volatility will eventually subside but “we may have this for another three-to-four days or three-to-four weeks,” Hellwig said.

Despite the swings, gauges of volatility eased after reaching their highest levels since 2011 this week. Europe’s VStoxx Index fell 13 percent on Thursday, while the U.S. VIX has dropped 36 percent in three days, the most since October.

“There seems to be a palpable relief especially after the ugly close on Tuesday,” Chris Bouffard, chief investment officer who oversees about $10 billion at Mutual Fund Store in Overland Park, Kan., said by phone. “A lot of people are breathing a sigh of relief and recognizing that this is a technical event, not a fundamental economic event. When you see the GDP surprise today, the fundamental is solid.”

Data today showed gross domestic product rose at a 3.7 percent annualized rate, exceeding all estimates of economists surveyed by Bloomberg, and up from the 2.3 percent reported last month. Bigger gains in consumer and business spending showed the U.S. expansion getting back on track.

Interest rates

The shortest-maturity Treasury notes fell for a third straight day as traders added to bets the economy is strong enough for the Fed to raise interest rates as soon as next month. New York Fed Bank President William Dudley said Wednesday the recent market turmoil has made the case for raising rates in September “less compelling.”

The MSCI Emerging Markets Index advanced 3.3 percent, the most in three years, as valuations near the lowest level since March 2014 spurred appetite for riskier assets. The ruble jumped 4.3 percent, leading gains as a gauge of 20 currencies rebounded from a record low.

The Shanghai Composite Index fell as much as 0.7 percent in the afternoon session before surging in late trading to close 5.3 percent higher. Hong Kong’s Hang Seng China Enterprises Index advanced 4.6 percent.

China’s government intervened to boost the stock market Thursday before a Sept. 3 military parade celebrating the 70th anniversary of the victory over Japan during World War II, according to people familiar with the matter, who asked not to be identified because the move wasn’t publicly announced.

Shanghai’s gauge, which dropped 43 percent from a June high through Wednesday, hasn’t spent an entire trading day in positive territory since Aug. 10, the day before China devalued its currency.

The Bloomberg Commodity Index climbed 3 percent, the most since June 2012. West Texas Intermediate crude futures surged 10 percent to $42.56 a barrel as oil was caught up in the relief rally. The contract touched $37.75 on Monday, the lowest level since February 2009. Prices have decreased 20 percent this year.

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