August 31st, 2012

The Standard & Poor’s 500 Index (SPX) rose toward its longest monthly gain since March as Federal Reserve Chairman Ben S. Bernanke said he wouldn’t rule out more steps to lower a jobless rate he described as a “grave concern.”

Intel Corp. (INTC) and Alcoa Inc. (AA) added at least 1.4 percent to pace gains among the biggest companies. Corning Inc. (GLW), the world’s largest maker of glass for flat-panel televisions, climbed 4.5 percent after Oppenheimer & Co. raised its recommendation on the shares. U.S. Airways Group Inc. jumped 4.7 percent after signing a confidentiality agreement to review the books of bankrupt takeover target American Airlines.

The S&P 500 rose 0.9 percent to 1,411.52 at 11:01 a.m. in New York. The Dow Jones Industrial Average added 140.07 points, or 1.1 percent, to 13,140.78 today. Trading in S&P 500 companies was down 14 percent from the 30-day average at this time of day.

“It’s the strongest language on unemployment I remember Bernanke using,” said Bruce McCain, who helps oversee more than $20 billion as chief investment strategist at the private- banking unit of KeyCorp in Cleveland. “That makes the next jobs report even more critical. If it deviates significantly from muddling along, they may well be forced to act. If we remain in this continuing growth, but not as strong as we would like to see, it will be a much harder choice for them to come with a significant program.”

Bernanke’s speech comes two weeks before he leads a meeting of the Federal Open Market Committee to decide whether an expansion of the Fed’s record stimulus is needed to spur growth. Two rounds of large-scale asset purchases totaling $2.3 trillion have so far failed to reduce the jobless rate below 8 percent more than three years into the recovery.

No Improvement

“We have seen no net improvement in the unemployment rate since January,” Bernanke told central bankers and economists in the audience, according to a text of his remarks released in Washington. “Unless the economy begins to grow more quickly than it has recently, the unemployment rate is likely to remain far above levels consistent with maximum employment for some time.”

Data today showed that business activity in the U.S. expanded at a slower pace in August, indicating companies may hold the line on production until sales pick up. The Thomson Reuters/University of Michigan final index of consumer sentiment rose to 74.3 in August from 72.3 the prior month. The gauge was projected to rise to 73.6.

The S&P 500 is on course for its third straight monthly advance and, if history is any guide, the index may extend gains next month, according to a Bespoke Investment Group study. Going back to 1928, the index has returned an average 0.12 percent in September when it has been up year-to-date through August, the data showed. The measure has risen 12 percent so far in 2012.

Confounded Bears

The August rally in stocks confounded bears who predicted the S&P 500 would repeat last year’s summer slump.

The index tracked its 2011 performance in the first seven months of the year. The relationship broke down at the end of July as European Central Bank President Mario Draghi pledged to do whatever it takes to preserve the euro and speculation grew that the Fed will stimulate the economy.

Albert Edwards, a London-based strategist at Societe Generale SA, said in a July 25 report that asked “is the S&P replaying 2011?” that the U.S. economy looks to have returned to recession. The same day, Bob Janjuah, global head of tactical asset allocation at Nomura Holdings Inc., predicted a “major risk-off phase” in the coming four months with global stocks falling by as much as 20 percent to 25 percent.

‘Main Role’

“If it hadn’t been for Draghi’s ‘We will do everything’ remark, the S&P 500 would’ve followed the 2011 script,” said Manish Singh, the London-based head of investment at Crossbridge Capital, which has more than $2 billion under management. “The ECB has played the main role in making this year different.”

The S&P 500 sank 5.7 percent in August 2011, and a further 7.2 percent the following month, data compiled by Bloomberg show. The benchmark gauge for U.S. equities advanced 2.3 percent this month though the Aug. 29 close.

“We expected returns to be quite decent in August and still do going forward,” said Daniel McCormack, a strategist at Macquarie Securities Ltd. in London. “If you look at the background coming into the month, valuations were extreme and when that is the case you don’t need much in the way of good news to get markets moving.”

- Rita Nazareth in New York at Bloomberg.