S&P 500 gains for second day amid global rally after Fed meeting

NEW YORK – U.S. stocks rose, after the biggest jump in a year for the Standard & Poor’s 500 Index, as global equities rallied on the Federal Reserve’s pledge to be patient on the timing of rate increases.

The S&P 500 added 1.3 percent to 2,038.50 at 11:49 a.m. in New York. The index has climbed 3.3 percent over two days, the most since January 2013. The Dow Jones Industrial Average gained 216.06 points, or 1.2 percent, to 17,572.93. Trading in S&P 500 companies was 23 percent above the 30-day average for this time of the day.

“Just as with other instances, a dovish Fed is making up for a lot of bad news, from Europe from other parts of the world,” Russ Koesterich, chief investment strategist at New York-based BlackRock Inc., said in an interview on Bloomberg Television. “This is why you have this rebound rally after a few days of very harsh losses.”

U.S. stocks are rebounding from a seven-day decline that erased $1 trillion from equity prices and coincided with a 15 percent drop in West Texas Intermediate crude between Dec. 5 and Dec. 16. S&P 500 energy producers tumbled 8 percent over the stretch while chemical and mining companies lost 7.4 percent.

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Should it continue, the recovery would be the fifth time this year the S&P 500 has come back after falling more than 4 percent from a high. In comparable drops beginning in January, April, July and September, the index needed about a month to erase losses, data compiled by Bloomberg show.

Economic data

The Fed meeting took place after a series of government reports showing that the U.S. economy is thriving. Payrolls rose by 321,000 last month, the biggest increase in almost three years, while retail sales increased 0.7 percent, the most in eight months.

Jobless claims decreased by 6,000 to 289,000 in the week ended Dec. 13, the fewest since early November, a Labor Department report showed today in Washington. The Conference Board’s leading indicators index, a gauge of the outlook for the next three to six months, increased 0.6 percent in November. The median forecast of 49 economists surveyed by Bloomberg called for a 0.5 percent advance.

“There’s no reason why the S&P 500 cannot continue to chug higher,” said Jonathan Aldrich-Blake, a U.S. equity fund manager at Ashburton Investments in Jersey, the Channel Islands. “The U.S. economy is one of the safest bets in the world, and the Fed coming out with a dovish tone yesterday just gives investors the confidence they needed.”

Stocks in the benchmark gauge for U.S. equities are heading for their third consecutive annual gain and have risen almost 200 percent since global equities bottomed in 2009. The biggest bull market since the 1990s technology bubble was fueled as the Fed executed three rounds of bond buying to stimulate the economy and held interest rates near zero since December 2008.

Fed statement

Equities rallied yesterday as Fed Chair Janet Yellen clarified the central bank’s monetary policy plans, saying it is likely to hold rates near zero at least through the first quarter. She also laid out the economic parameters that would need to be met for liftoff to begin later in the year and said that rates probably would be raised gradually thereafter. They may not return to more normal levels until 2017, she added.

December has been one of the strongest months for equities since the bull market began. The S&P 500 has risen in the year’s final month sixth consecutive times, posting an annual average return of 2.2 percent. The index has pared this month’s decline to 1.4 percent.

Gains in the measure have been led by health-care companies and utilities, up 20 percent or more from the start of the year, followed by technology producers, makers of household products and banks and brokerages. Energy companies have been the biggest drag, falling 13 percent thanks to declines in four of the last five months.

Earnings strength

Stocks in the S&P 500 are trading at 18 times annual earnings after valuations reached a four-year high of 18.3 times profit earlier this month. Income among the gauge’s constituents is poised to rise 3 percent in the fourth quarter and 7.3 percent in 2015, analyst estimates compiled by Bloomberg show.

Among industries, analysts estimate that earnings will grow fastest next year for consumer discretionary companies, at 14.1 percent, followed by commodity producers at 14 percent and technology makers at 13.2 percent. Energy companies may see profits fall more than 13 percent in 2015, analyst estimates compiled by Bloomberg show.

Energy shares

All 10 groups in the S&P 500 advanced today, led by technology shares. Oracle Corp. jumped 7.9 percent, the most in three years, after the software maker reported second-quarter profit and sales that beat analysts’ estimates.

Energy stocks, which soared the most in three years yesterday, was little changed. The group pared an earlier rally of 2.3 percent after West Texas Intermediate wiped out a gain of 4 percent.

The Chicago Board Options Exchange Volatility Index lost 7.9 percent to 17.90. The VIX has plunged 24 percent over two days, the most since October 2013. The index climbed to a two- month high on Dec. 16.

Hertz Global Holdings Inc. added 6.9 percent after shareholder Carl Icahn reported an increased stake in the car- rental company. Icahn bought 2.63 million shares on Dec. 15.

Rite Aid Corp. surged 12 percent after quarterly profit and revenue topped analysts’ estimates, helped by an increase in sales of prescription drugs, and the retailer boosted its annual earnings forecast.

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