U.S. stocks soared to a two-month high as commodity producers rallied and the Federal Reserve’s signal that it may raise interest rates as soon as December sent financial shares surging.
Equities had advanced into the afternoon Fed statement, boosted by Apple Inc. following its better-than-expected results and by energy shares as oil surged the most in eight weeks. The indication that policy makers are still considering a rate increase this year briefly undercut the gains before banks jumped on the prospect of stronger profits.
The Standard & Poor’s 500 Index rose 1.2 percent to 2,090.35 at 4 p.m. in New York, its highest since Aug. 18. The Dow Jones Industrial Average climbed 198.09 points, or 1.1 percent, to 17,779.52. The Nasdaq Composite Index increased 1.3 percent, while the Russell 2000 Index rallied 2.9 percent, its biggest gain this year. About 8.5 billion shares traded hands on U.S. exchanges, 15 percent above the three-month average.
“The impression the Fed left is that December is still on the table, they didn’t close the door to that,” said Russ Koesterich, a global chief investment strategist at BlackRock Inc., the world’s largest money manager. “You’re going to see some change of positions here, the main takeaway is the Fed is managing their optionality and if we get a few good economic data points, then December is possible.”
Bank of America Corp. surged 5.4 percent and the KBW Bank Index climbed the most in two months after the Fed’s comments. Energy shares advanced as crude added 6.3 percent, while Apple gained 4.1 percent, the most in eight weeks, after its results and forecast for record holiday sales.
The economy is still expanding at a “moderate” pace, Fed officials said as they left interest rates unchanged, and they will consider tightening policy at their next meeting in December without making a commitment to act this year. Even with a slower pace of recent job gains, labor market indicators show slack has diminished since early this year, the Federal Open Market Committee said.
The Fed removed a line from September’s statement saying that global economic and financial developments “may restrain economic activity somewhat,” saying only that the central bank is monitoring the international situation.
Policy makers last month opted to not raise rates after China’s slowdown and its August currency devaluation added uncertainty to the global economic picture, sparking turmoil in financial markets. Markets have calmed this month, and a rate cut by China’s central bank last week helped the S&P 500 erase a loss for the year.
The main U.S. equity gauge is poised for its best monthly gain in four years after rebounding almost 12 percent from an August low. Energy, raw-material and industrial shares have helped propel the October rally, the same groups that weighed heavily during the benchmark’s worst quarter since 2011 amid concern that weakness in China would spread. The index closed Wednesday less than 2 percent below its May record.
Uneven data, including weaker-than-forecast new-home sales and consumer confidence reports this week, have held down expectations for higher borrowing costs this year. Following the Fed statement, traders priced in a 54 percent odds on a January rate increase, up from about 43 percent earlier today. The central bank has held the federal funds target rate in a range of zero to 0.25 percent since December 2008.
Investors are also looking to corporate results to help measure the economy’s strength. Analysts project profits for S&P 500 members dropped 6.1 percent in the third quarter. Of those that have released results this season, about 75 percent have exceeded profit projections, while 55 percent missed sales estimates. Altria Group Inc., MasterCard Inc. and Starbucks Corp. are among 49 companies in the benchmark scheduled to report on Thursday.
Apple’s gain today buoyed equities after the company said sales in the current quarter will top last year’s record. Chief Executive Officer Tim Cook attributed the forecast to customers upgrading to the latest iPhone models, converts switching over from Android handsets and continued growth in China.
Level 3 Communications Inc. rallied 9.3 percent, the most in more than a year to lead phone companies higher after the company’s quarterly profit topped analysts’ estimates. CenturyLink Inc. increased 1.7 percent.
Akamai Technologies Inc. fell 17 percent, the steepest slide since 2011 after its fourth-quarter revenue outlook was short of analysts’ forecasts. At least three analysts subsequently cut their ratings on the shares. Twitter Inc. fell 1.5 percent, trimming an earlier 11 percent slide, after predicting weaker-than-estimated sales growth. In the U.S., the world’s largest advertising market, Twitter’s user count remained flat at 66 million last quarter.
Hershey Co. lost 6.4 percent, the most in seven years and weighed on the S&P 500’s consumer staples group. Despite posting a third-quarter profit that exceeded analysts’ estimates, the candy maker’s full-year outlook was below forecasts.
“There’s still a strong dollar weighing on sales for multinationals, and there’s still some feeling of cost cutting and share buybacks boosting the EPS over the last year,” said Jasper Lawler, London-based market analyst at CMC Markets Plc. “There’s only so much longer you can do that and after a while you have to roll on organic profitability which maybe isn’t there.”
The Chicago Board Options Exchange Volatility Index declined 7.1 percent Wednesday to 14.33. The measure of market turbulence known as the VIX is on pace for its steepest monthly drop ever, after a record climb in August.
Energy companies in the S&P 500 surged 2.2 percent, while financial companies added 2.4 percent, the strongest gain among the benchmark’s 10 main groups. Bank of America posted its biggest increase since December 2012, while Comerica Inc. climbed 5.1 percent, also the most since 2012.
Oil jumped to lead energy higher as increasing U.S. refinery activity signaled the end of seasonal maintenance and higher crude demand. Chevron Corp. climbed 2.4 percent to halt a three-day slide, while Occidental Petroleum Corp. and Apache Corp. added at least 4.3 percent.
Among other companies moving on corporate news, American International Group Inc. rose 4.9 percent, its strongest advance in more than two years after Carl Icahn disclosed a stake in AIG and said it should split into three companies.
Northrop Grumman Corp. increased 5.5 percent to a record after winning a Pentagon contract valued at as much as $80 billion to build the Air Force’s Long-Range Strike Bomber. Boeing Co. declined 0.4 percent, trimming an earlier 2.2 percent drop, after losing out in its bid for the bomber contract.
Cabela’s Inc. soared 17 percent, the most in five years. Activist investor Elliott Associates disclosed an 11 percent stake in the company and said it may push for a shake-up or leveraged buyout.
Diamond Foods Inc. rose 8.9 percent to its highest since 2012. Snyder’s-Lance Inc. agreed to buy the snack maker for about $1.27 billion to add Kettle potato chips and Emerald almonds to its offerings.
Rite-Aid Corp. retreated 7 percent, after surging 43 percent Tuesday before an official announcement that Walgreen Boots Alliance Inc. will buy the drugstore chain in a deal valued at $17.2 billion, including debt. Walgreen lost 11 percent, the most since August 2014.