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U.S. Stocks Rally as Yellen Speech Fuels Bets on Economy

By Callie Bost and Jeff Sutherland
February 11, 2014 4:45 PM EST 116 Comments

U.S. stocks rose, giving benchmark indexes the biggest four-day rally in more than a year, as comments by Federal Reserve Chairman Janet Yellen fueled bets the economy is strong enough to weather further stimulus cuts.

Cliffs Natural Resources Inc. (CLF) and Mosaic Co. increased more than 2.4 percent to pace a rally among commodity shares. Boeing Co. and Goldman Sachs Group Inc. jumped at least 2.1 percent, leading gains in the Dow Jones Industrial Average. Sprint Corp. rose 2.7 percent after fourth-quarter revenue topped estimates. CVS Caremark Corp. climbed 2.7 percent as pharmacy sales rose on new medicines and new customers.

The Standard & Poor’s 500 Index gained 1.1 percent to 1,819.75 at 4 p.m. in New York. The gauge advanced 3.9 percent over four days, and climbed above its average level over the past 50 sessions for the first time in more than two weeks. The Dow rose 192.98 points, or 1.2 percent, to 15,994.77. The Nasdaq Composite Index added 1 percent, erasing a loss for the year. About 7 billion shares changed hands on U.S. exchanges, 11 percent higher than the 30-day average.

Related: Yellen Says Recovery in Labor Market Far From Complete

“The market likes consistency and what we’ve heard this morning has been consistent with what we’ve heard for months,” Steven Rees, head of U.S. equities at JPMorgan Private Bank, which oversees $977 billion in assets, said in a phone interview. “Tapering continues, but it continues to be the result of an economic situation that’s slowly improving. The economy is still on track to have a good year.”

Yellen, 67, delivered her first public remarks as Fed policy makers pursue plans to gradually scale back the unprecedented bond-purchase program she helped put in place. Economic growth has strengthened and there is “broad improvement” in the labor market,’’ the chairman said. She repeated the Fed’s outlook for further reductions in “measured steps” and that asset purchases, known as quantitative easing, are not on a “pre-set course.”

‘Dual Mandate’

While growth has picked up, “the recovery in the labor market is far from complete,” Yellen said in remarks to the House Financial Services Committee. “I am committed to achieving both parts of our dual mandate: helping the economy return to full employment and returning inflation to 2 percent while ensuring that it does not run persistently above or below that level.”

Federal Open Market Committee officials have twice reduced the size of the monthly asset-purchase program, lowering bond buying to $65 billion in February from $85 billion last year. Three rounds of stimulus under previous Chairman Ben S. Bernanke have helped push the S&P 500 as much as 173 percent higher from a 12-year low in 2009.

‘Very Methodical’

“Yellen will be very careful to create a degree of stability,” Stephen Wood, New York-based chief market strategist at Russell Investments, said by phone. His firm oversees over $256 billion. “No genius ideas out of left field, just very methodical. The market is not only going to like the message but they’re going to like the messenger. The Fed will be accommodative and the Fed will maintain credibility the bond market and equity market will appreciate.”

Yellen said financial-market turmoil doesn’t pose a major risk to the outlook for the U.S. economy. Asset prices aren’t at “worrisome levels” even after the S&P 500 soared 30 percent last year, Yellen said, although the Fed is on the lookout for any threat of a bubble.

The S&P 500 has rallied 4.5 percent over the past six sessions, trimming its decline for the year to 1.6 percent. The benchmark gauge closed at a record on Jan. 15 and then dropped 5.8 percent through Feb. 3 on signs of slowing growth in China and a rout in emerging-market currencies.

Debt Talks

Equities extended gains amid speculation Congress was nearing an agreement on debt talks in Washington. The House of Representatives will vote tonight on suspending the U.S. debt limit, with a snowstorm forecast for the U.S. East Coast tomorrow, a Republican leadership aide said.

House Speaker John Boehner, an Ohio Republican, said Democrats will need to back the measure suspending the debt ceiling until March 15, 2015, which he said will get minimal Republican support. A suspension of the U.S. debt limit enacted by Congress in October expired Feb. 7. Treasury Secretary Jacob J. Lew said last week that borrowing authority may not last past Feb. 27.

Sixteen companies in the S&P 500 were scheduled to release earnings results today. Of the index members to have reported this season, 76 percent beat analysts’ profit estimates, while 66 percent exceeded sales forecasts, data compiled by Bloomberg show.

Earnings Season

Profit for the benchmark’s stocks rose by 8.3 percent in the fourth quarter of 2013 and revenue by 2.7 percent, according to analyst estimates compiled by Bloomberg.

The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 (SPX) options known as the VIX, dropped 4.9 percent to 14.51 today, for its fourth straight decline.

All 10 main industries in the S&P 500 advanced, with energy companies increasing 1.4 percent and raw-materials shares rising 1.2 percent. The Morgan Stanley Cyclical Index gained 1.4 percent, while the Dow Jones Transportation Average increased 1.2 percent. Boeing added 2.4 percent to $130.16 and Goldman Sachs jumped 2.1 percent to $164.39. Newmont Mining Corp. climbed 3.2 percent as gold prices surged 1.2 percent.

Phone shares rose 1.3 percent as a group. Sprint jumped 2.7 percent to $7.90 after saying fourth-quarter sales rose to $9.14 billion, beating the average analyst estimate calling for $8.99 billion in a Bloomberg survey.

Mosaic jumped 2.4 percent to $47.96. The largest U.S.-based potash producer expects record global shipments of the crop nutrient this year as customers become more confident that prices are unlikely to extend declines.

Cliffs Natural

Cliffs Natural Resources climbed 4.5 percent to $21.50. Cliffs has gained 11 percent this month after shareholder Casablanca Capital LP urged the biggest U.S. iron-ore producer to spin off its international assets, double its dividend and cut expenses. Cliffs was the second-worst performer in the S&P 500 last year, plunging 32 percent.

CVS Caremark added 2.7 percent to $68.77. The largest provider of prescription drugs in the U.S. posted fourth-quarter profit that topped analysts’ estimates. The new drugs and an expanded roster of clients for specialty pharmaceuticals, along with higher prices, boosted revenue from pharmacy services to $19.6 billion, the company said.

General Motors Co. gained 1 percent to $35.25 as sales in China rose 12 percent to a record 348,061 units last month. Buick monthly deliveries gained 16 percent to surpass 100,000 units for the first time.

InvenSense Rises

InvenSense Inc. climbed 11 percent to $21.69 after saying it has settled pending patent litigation proceedings with STMicroelectronics NV. The two companies entered into a patent cross-license agreement, resolving lawsuits over infringement.

ConAgra Foods Inc. dropped 6.3 percent to $29.08, the lowest level since November 2012. ConAgra cut its year-end profit forecast, reflecting a longer time frame to restore its private brands segment to planned levels of operating profit, as well as weaker-than-anticipated volumes in consumer foods.

Urban Outfitters Inc. (URBN) slipped 2.8 percent to $35.61. The clothing retailer reported fourth-quarter preliminary sales of $906 million, less than analysts’ estimates of $925.97 million. Urban Outfitters will release its fourth-quarter earnings on March 10.

To contact the reporters on this story: Callie Bost in New York at cbost2@bloomberg.net; Jeff Sutherland in New York at jsutherlan13@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net

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