U.S. stocks rose the most in a week, as increasing speculation the Federal Reserve will raise interest rates this summer sparked gains in financial shares, while housing data signaled the economy is strengthening enough to support higher borrowing costs.
Banks surged as Treasury yields climbed toward a three-week high, with JPMorgan Chase & Co. and Citigroup Inc. rising at least 1.8 percent. Toll Brothers Inc. jumped the most in almost three years after stronger-than-forecast new-home sales and as the luxury builder’s quarterly profit topped estimates. An S&P index of homebuilders was on track for the steepest climb in more than two months.
The S&P 500 gained 1.2 percent to 2,071.58 at 10:32 a.m. in New York, after slipping 0.2 percent Monday in light volume. The gauge rose above its average price during the past 50 days for the first time in four days. The Dow Jones Industrial Average added 201.56 points, or 1.2 percent, to 17,694.49. The Nasdaq Composite Index increased 1.5 percent, on track for the most in five weeks. Trading in S&P 500 shares was in line with the 30-day average for this time of day.
“This is the way these markets seem to run now with these quick reversals,” John Stoltzfus, chief market strategist at Oppenheimer & Co. in New York, said by phone. “The first weeks of the year were the end of the world, and the story the next eight weeks was that there’s great promise on this Earth. Now, if the Fed is raising rates because the economy is doing better, that looks like a good thing and it seems the market is recognizing that. The jump today in new-home sales, it’s a volatile figure, but that’s a big deal.”
A report today showed April new-home sales surged to the highest level in more than eight years, pointing to a robust spring selling season for builders. The median sales price climbed to a record, reflecting a pickup in signed contracts for more expensive properties.
Traders are now pricing in a 36 chance of a rate increase in June, from 4 percent last Monday, as Fed officials signaled their willingness to make such a move if the economy shows sustained progress. Along with today’s April new-home sales report, investors will scrutinize releases on consumer sentiment and GDP later this week.
July is now the first month with at least even odds of higher borrowing costs, versus February 2017 as recently as two weeks ago. Fed Bank of Philadelphia President Patrick Harker late yesterday said two to three rate hikes in 2016 were possible, while San Francisco Fed President John Williams said earlier a similar pace of increases sounded “about right.” Fed Chair Janet Yellen is scheduled to speak on Friday.
While the S&P 500 regained an annual advance at the end of last week, it has struggled for direction, alternating between daily gains and losses for the past several sessions as investors sought clarity on the Fed’s monetary path. The gauge hasn’t had a back-to-back climb in two weeks, and traded Monday in the narrowest range since April 15 amid volume on U.S. exchanges that was the lowest in almost two months.
After a rebound of as much as 15 percent from a 22-month low in February, the main U.S. equity benchmark has churned in a range of less than 50 points in May. The rally ran out of steam in late April, after the S&P 500 came within 1.4 percent of a record set just over a year ago, amid mixed earnings reports and lukewarm signs of economic growth.
“The market is reacting depending on how the Fed changes its tone, so Janet Yellen’s speech on Friday is considered as the next big step,” said Christian Gattiker, head of research at Julius Baer Group Ltd. in Zurich. “After the panic at the beginning of the year, the market rebounded strongly so we’re now in a bit of consolidation with investors digesting all that has been happening.”
As the earnings season draws to a close, analysts have moderated their predictions for a decline in first-quarter profits, to 7.2 percent from 10 percent as recently as April. Three in four firms that have released results that exceeded earnings expectations, and more than half topped sales forecasts.