U.S. stocks advance amid speculation of more economic stimulus

U.S. STOCKS advanced, rebounding from yesterday’s decline, amid speculation the Federal Reserve will take steps to stimulate the economy.
Posted 6/13/12

NEW YORK - U.S. stocks advanced, rebounding from yesterday’s decline, amid speculation the Federal Reserve will take steps to stimulate the economy and after the European Central Bank endorsed a plan to guarantee bank deposits.

All 10 groups in the Standard & Poor’s 500 Index rose as commodity, financial and industrial shares had the biggest gains. Boeing Co. jumped 3.5 percent as Sanford C. Bernstein & Co. raised its recommendation. Textron Inc. rallied 4 percent as Warren Buffett’s Berkshire Hathaway Inc. agreed to buy planes from the company. First Solar Inc. surged 21 percent after delaying the close of a German plant to meet European demand.

The S&P 500 advanced 1.2 percent to 1,324.18 at 4 p.m. New York time, after briefly erasing gains following Fitch Ratings’ downgrade of 18 Spanish banks. The Dow Jones Industrial Average increased 162.57 points, or 1.3 percent, to 12,573.80. Trading volume for exchange-listed stocks in the U.S. was about 6.2 billion shares, 8.6 percent below the three-month average.

“It has been a bit schizophrenic,” said Mark Luschini, chief investment strategist for Philadelphia-based Janney Montgomery Scott LLC, which manages about $54 billion. “What’s taking place in the Spanish bond market is troubling. Yet pessimism is so high that the prospect of any relief would be enough to jump-start a rally in equities. It seems investors are desperate for continued liquidity injections.”

Stocks rose as Federal Reserve Bank of Chicago President Charles Evans said he would support measures to generate faster job growth. The policy-setting Federal Open Market Committee meets next week. Equities also gained as the ECB backed a European Commission proposal to guarantee deposits.

‘Significantly’ miss

Earlier today, stocks fell as Spain’s bond yields climbed to a record after Fitch said the nation will “significantly” miss its budget deficit targets. The crisis in Spain, coinciding with the prospect of Greece leaving the euro after elections on June 17, has roiled markets. Benchmark gauges fell yesterday, reversing early gains, as optimism over Spain’s bailout plan gave way to skepticism it will halt the debt crisis.

“We’re going to just keep playing this game until there’s some final outcome of what’s going to happen with the euro,” Tom Wirth, who helps manage $1.5 billion as senior investment officer for Chemung Canal Trust Co., based in Elmira, New York, said in phone interview. “Europe is a total disaster.”

Optimism among global asset allocators “collapsed” this month as Europe’s debt crisis prompted money managers to sell equities and hoard cash to the highest level since 2008, a Bank of America Corp. survey showed.

Underweight stocks

Respondents, who together manage $522 billion, reduced their holdings in stocks to underweight for the first time in seven months, meaning they now own less than are represented in indexes. Cash balances surged to 5.3 percent in June, the third- highest level on record, while an index of risk and liquidity sank to 30, the lowest level since September 2011.

“It’s not quite maximum bearish, but it’s close,” Bank of America strategists Michael Hartnett and Gary Baker wrote in the report to clients dated today. “Optimism has collapsed back to lows of autumn 2011.”

A two-month decline, which drove the S&P 500 to the cheapest valuation since November, gave way to the biggest rally in 2012 last week. Today, measures of raw material, financial and industrial shares in the S&P 500 added at least 1.5 percent.

Alcoa Inc., the largest U.S. aluminum producer, rose 2.5 percent to $8.52. JPMorgan Chase & Co. added 2.9 percent to $33.77. Chief Executive Officer Jamie Dimon plans to testify before Congress tomorrow about his firm’s $2 billion trading loss.

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