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U.S. stocks rose, sending the Standard & Poor’s 500 Index to its biggest rally in almost a year, amid speculation the Federal Reserve will act to restore confidence in the markets after yesterday’s rout in equities.
Financial stocks, which paced a slide that erased $1 trillion in market value yesterday, led gains in the S&P 500 today, rallying 4.5 percent as a group. Bank of America Corp. (BAC) and Citigroup Inc. (C) jumped at least 7.2 percent after yesterday plunging more than 16 percent. Chevron Corp. (CVX) and Alcoa Inc. (AA) paced gains in energy and raw-material producers, rising at least 2.7 percent as oil rebounded and gold rose to a record.
The S&P 500 added 2.7 percent to 1,149.33 at 12:34 a.m. in New York, the biggest intraday advance since Sept. 1. The benchmark gauge for American equities dropped 6.7 percent yesterday and traded at 12.3 times reported earnings, the lowest valuation since March 2009. The Dow Jones Industrial Average rose 214.30 points, or 2 percent, to 11,024.15 today.
“We’ve come down too far, too fast,” Paul Zemsky, the New York-based head of asset allocation for ING Investment Management, said in a telephone interview. His firm oversees $550 billion. “We’re due for a bounce given how oversold we are. We believe the Fed will try to stabilize things and reiterate its commitment to do more if the situation warrants.”
Benchmark indexes had their biggest slump since December 2008 yesterday amid concern that a reduction of the U.S. credit rating by S&P may worsen an economic slowdown. The S&P 500 slumped 11 percent in three days, the most since November 2008, and fell to the lowest since September. The index dropped 18 percent from this year’s high on April 29 through yesterday.
Treasuries fell today, pushing 10-year note yields up from the lowest level since January 2009, on speculation the Fed officials may strengthen their commitment to record monetary stimulus as soon as today after a faltering economic recovery and a U.S. credit-rating cut provoked a rout in global stocks.
Fed Chairman Ben S. Bernanke and his colleagues are weighing the use of more untested policy tools after two rounds of bond buying totaling $2.3 trillion failed to spur sufficient economic growth and reduce unemployment below 9 percent. The Federal Open Market Committee holds its regular meeting today in Washington and plans to issue a statement at about 2:15 p.m. New York time.
Billionaire investor Wilbur Ross said he’s buying assets as the losses in global markets are being driven by fear rather than economic reality.
“Has the world really gotten 10, 12, 15 percent worse in the last 48 hours? I don’t think so,” Ross, who leads WL Ross & Co., said in an interview with Bloomberg Television. “Buying stocks at today’s prices over a couple of years’ time period will prove to be a uniquely rewarding experience.”
The benchmark index for U.S. stock options tumbled, following yesterday’s biggest surge since February 2007. The VIX, as the Chicago Board Options Exchange Volatility Index is known, slumped 10 percent to 43.16, paring yesterday’s 50 percent surge that took it to 48, the highest level since March 2009. The index measures the cost of using options as insurance against declines in the S&P 500.
Financial, energy and raw-material companies, which paced the declines in the S&P 500 yesterday, were among the best performers today, rising at least 2.5 percent. Companies which are least-tied to the economy, including consumer staples providers and utilities, rose less than the S&P 500 today.
The KBW Bank Index (BKX) rallied 3.7 percent as all of its 24 stocks rose. Bank of America, the largest U.S. lender by assets, gained 7.2 percent to $6.98, after erasing 20 percent yesterday. Citigroup added 12 percent to $31.34.
The two banks led yesterday’s 12 percent decline in the KBW index after S&P’s downgrade cast doubt on federal backing for U.S. lenders. Bank of America’s $33 billion plunge in market value over the past week has stoked concern that Chief Executive Officer Brian T. Moynihan needs to raise capital even as his options for finding it narrow by the day.
Commodity producers also jumped today as oil recovered from its lowest price in more than 10 months and gold advanced to a record. Chevron, the second-largest U.S. energy company, climbed 2.3 percent to $92.34. Alcoa, the largest U.S. aluminum producer, added 6.4 percent to $12.05.
Car companies had the biggest advance within 24 industries in the S&P 500, rising 6.2 percent as a group. Ford Motor Co. (F) gained 9.5 percent to $10.88 after Bank of America added the automaker to its “U.S. 1” list, which represents a collection of the firm’s “best investment ideas.”
Pfizer Inc. (PFE) advanced 4 percent to $17.32. The world’s biggest drugmaker was also added to Bank of America’s “U.S. 1” list. Separately, Goldman Sachs Group Inc. added Pfizer to its “Conviction Buy” list.
Warren Buffett’s Berkshire Hathaway Inc. (BRK/A) was raised to “overweight” from “equal weight,” by Barclays Plc after the company’s stock fell yesterday to its lowest since January 2010. Berkshire Hathaway Class B shares added 4.6 percent to $69.72.
AOL Inc. (AOL), the Internet company that purchased the Huffington Post in March, tumbled 14 percent to $13, its lowest level since its spinoff from Time Warner Inc. in 2009. AOL reported a second-quarter loss as rising global advertising sales failed to overcome the continuing decline in subscriptions to Web access.
Cablevision Systems Corp. (CVC) fell the most in the S&P 500, sliding 8.5 percent to $17.86. The fifth-largest U.S. cable provider reported profit that missed analysts’ estimates after subscribers defected to rivals or abandoned pay-TV amid a sluggish economy.
General Electric Co. (GE) and Johnson & Johnson (JNJ) are among 20 stocks investors should buy for their dividend yields after equities plunged and Treasuries surged in the past two weeks, JPMorgan Chase & Co. said.
The 17 percent drop in the Standard & Poor’s 500 Index from July 22 through yesterday has spurred investor concern of a recession, according to Thomas J. Lee, the bank’s New York-based chief U.S. equity strategist. While the likelihood that the U.S. economy will contract is low, investors should buy stocks with dividend yields that are higher than the 10-year Treasury yield and have strong earnings growth until equity markets recover, Lee wrote in a note to clients today.
- Rita Nazareth in New York at Bloomberg.