U.S. stocks rose, giving the Standard & Poor’s 500 Index its best two-day rally since January, after better-than-forecast growth in employment indicated the economy continues to expand.
Boeing Co., Walt Disney Co. and American Express Co. added more than 2.4 percent, pacing gains in the Dow Jones Industrial Average (INDU) as a gauge of cyclical stocks rallied. Wal-Mart Stores Inc. added 0.9 percent after approving a new buyback program. Gap Inc. rose 2.7 percent after reporting same-store sales for May that beat analyst estimates. Iron Mountain Inc. tumbled 16 percent after saying its conversion to a real estate investment trust is being scrutinized by tax regulators.
The S&P 500 (SPX) jumped 1.3 percent to 1,643.38 at 4 p.m. in New York. The index rallied 2.1 percent in the past two days to finish the week 0.8 percent higher. The Dow jumped 207.50 points, or 1.4 percent, to 15,248.12. More than 6.4 billion shares traded hands on U.S. exchanges today, in line with the three-month average.
“This report’s in the sweet spot,” Brian Jacobsen, who helps oversee $221.2 billion as chief portfolio strategist at Wells Fargo Advantage Funds in Menomonee Falls, Wisconsin, said by telephone. “It shows investors that the economy is growing but not fast enough for them to be concerned that the Fed is going to start tapering its asset purchase program.”
Federal Reserve stimulus and better-than-expected earnings have propelled the bull market in U.S. equities into a fifth year and driven the S&P 500 up 143 percent from a 12-year low in 2009. The index has dropped 1.5 percent since closing at a record high on May 21, the day before Fed Chairman Ben S. Bernanke suggested the central bank could curtail its $85 billion monthly bond purchases if the job market improved in a “real and sustainable way.”
Stocks surged after a Labor Department report showed payrolls rose 175,000 last month from a revised 149,000 increase in April that was smaller than first estimated. The jobless rate climbed from a four-year low as more Americans entered the labor force. Data yesterday showed jobless claims decreased by 11,000 to 346,000.
The improvement in the labor market is a sign companies are looking beyond fiscal restraint this quarter and are optimistic enough about the prospects for demand in the second half of the year. At the same time, bigger job and wage gains are needed to move Fed policy makers closer to scaling back record monetary stimulus.
Bernanke needs to see four months of job growth averaging at least 200,000 to justify reducing the pace of asset purchases, according to Vincent Reinhart, a former director of the Fed’s Division of Monetary Affairs. About 194,000 jobs were added on average over the past six months.
“The jobs report provided a sense of relief for a lot of investors,” Robert Doll, chief equity strategist at Nuveen Asset Management LLC, said in a phone interview. His firm manages about $250 billion in assets. “Many people had feared it was going to be worse than the estimates, but we remain stuck in the middle. It’s not so weak that you say ’Oh my goodness, the economy,’ and it’s not so strong that you expect the Fed is going to start scaling back bond buying in September.”
Bill Gross, manager of the world’s biggest bond fund, said in a Bloomberg Radio interview that the Fed is unlikely to reduce its asset purchases after the unemployment rate climbed. Economists estimate the Fed will scale back bond buying to $65 billion at the Oct. 29-30 meeting of the Federal Open Market Committee, according to the median estimate in a Bloomberg survey this week. In a similar survey before the Fed’s last meeting, economists forecast the central bank to taper to $50 billion in the fourth quarter. The FOMC next meets June 18-19.
The Chicago Board Options Exchange Volatility Index (VIX), or VIX, lost 9 percent to 15.14. The benchmark gauge for American stock options, which moves in the opposite direction as the S&P 500 about 80 percent of the time, fell for the second day after briefly erasing its loss for the year yesterday. The index has dropped 16 percent this year.
Nine of 10 industries in the S&P 500 advanced, with consumer discretionary and industrial stocks rising more than 1.7 percent to pace gains. Boeing, the world’s largest plane maker, added 2.7 percent to $102.49, the stock’s highest since 2007.
The Morgan Stanley Cyclical Index (CYC) rose 1.6 percent as companies whose earnings are most tied to economic swings rallied after the jobs data. Disney, the world’s largest theme park operator, added 2.7 percent to $64.85, and American Express, the biggest credit-card issuer by purchases, gained 2.4 percent to $78.04. Morgan Stanley, the biggest financial brokerage, surged 6.3 percent to $27, the most in the S&P 500.
“We’re seeing a rotation into cyclicals and a belief that the economy is on stable footing,” Darrell Cronk, the New York-based regional chief investment officer at Wells Fargo Private Bank, which oversees $170 billion, said by phone. “We’re still in a buy-the-dips mentality and people continue to look at the value that equities pose.”
Wal-Mart Stores climbed 0.9 percent to $76.33. The new $15 billion buyback program was effective yesterday and replaces the previous $15 billion authorization, which had about $712 million remaining, the world’s largest retailer said in a statement.
Gap advanced 2.7 percent to $42.09 after the largest U.S. specialty-apparel retailer reported a 7 percent increase in total comparable sales for last month. Analysts had projected a 3.7 percent gain, on average, according to researcher Retail Metrics Inc.
Yum! Brands Inc. (YUM:US) climbed 3.4 percent to $73.52. UBS AG raised its recommendation for the owner of KFC to buy from neutral and added the company to its U.S. “key call” list, saying sales and profitability in China will start to improve from the impact of recent health scares in the country.
GameStop Corp. rose 6.2 percent to $36.75 for the second-biggest gain in the S&P 500. The world’s largest video-game retailer rose after Microsoft Corp., responding to concerns about trade-in rights on its new Xbox One console, said users may sell titles back to retailers or give them to friends provided they have approval from the publisher.
TiVo Inc. dropped 19 percent to $11.10. The developer of digital-video recorders settled a patent dispute with Google Inc.’s Motorola Mobility unit, Cisco Systems Inc. and Time Warner Cable Inc. for $490 million -- less than estimated.
Iron Mountain tumbled 16 percent to $28.95 for the biggest decline in the S&P 500, and Equinix Inc. slumped 5.5 percent to $192.57. The two technology companies said the U.S. Internal Revenue Service is scrutinizing their eligibility to convert to real estate investment trusts.
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