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U.S. Stocks Rally as ECB Boosts Optimism Before Jobs Data

By Joseph Ciolli
June 05, 2014 4:43 PM EDT 48 Comments

U.S. equity benchmarks rose to records and the Russell 2000 Index rallied to the highest since April, as European Central Bank stimulus boosted optimism in the global economy before tomorrow’s jobs report.

Twitter Inc. and Amazon.com Inc. soared more than 3 percent as Internet shares jumped after hedge fund manager David Tepper expressed renewed confidence in U.S. equities. Ciena Corp. surged 18 percent as earnings beat analyst estimates. Sprint Corp. dropped 4 percent after people with knowledge of the matter said it is nearing a price agreement for a potential acquisition of T-Mobile (TMUS) US Inc.

The Standard & Poor’s 500 Index rose 0.7 percent to 1,940.46 at 4 p.m. in New York. The Dow Jones Industrial Average added 98.58 points, or 0.6 percent, to 16,836.11. Both gauges closed at all-time highs. The Russell 2000 index of smaller companies jumped 2 percent. About 5.9 billion shares changed hands today on U.S. exchanges, 5.8 percent below the three-month average.

“Mario Draghi is taking a sledgehammer to the disinflationary environment in the eurozone,” said Chad Morganlander, a fund manager at Stifel Nicolaus & Co., which oversees $160 billion, from Florham Park, New Jersey. “His actions are well beyond expectations.”

ECB President Mario Draghi reduced the deposit rate to minus 0.1 percent from zero, making the institution the world’s first major central bank to use a negative rate. Policy makers lowered the benchmark rate to 0.15 percent from 0.25 percent.

Stimulus Measures

In a bid to get credit flowing to parts of the economy that need it, the ECB also opened a 400-billion-euro ($542 billion) liquidity channel tied to bank lending and officials will start work on an asset-purchase plan. A worsening in the euro area’s economic outlook and a prolonged spell of slow inflation prompted the ECB to act to preserve the fragile recovery in the world’s second-largest economy.

“The stimulus from Europe is a positive thing, especially when you compare it to the fact that the U.S. is starting to ease up,” Joe Bell, senior equity analyst at Cincinnati-based Schaeffer’s Investment Research Inc., said in a phone interview. “Stimulus is being added from a different market.”

In the U.S., data showed fewer Americans filed applications for unemployment benefits over the past month than at any time in seven years, a sign the labor market continues to strengthen. The four-week average for jobless claims fell to 310,250 in the period ended May 31, the lowest since June 2007, a Labor Department report showed today in Washington.

Jobs Data

A private report on payrolls yesterday indicated companies in the U.S. added fewer jobs than forecast in May, before tomorrow’s Labor Department data on employment. That report may show private payrolls, which exclude government agencies, increased 210,000 in May after a 273,000 gain in the month prior, according to the median estimate in a Bloomberg survey.

Fed officials are watching the labor market as they move to complete their bond-purchase program late this year and start considering the timing of the first interest-rate increase since 2006. Central-bank stimulus has helped propel the S&P 500 higher by as much as 187 percent from its bear-market low in March 2009.

The Fed said in its Beige Book business survey yesterday that the economy expanded at a modest to moderate pace last month as auto sales led household spending and the labor market improved. The survey, released two weeks before policy makers meet in Washington, supports Chair Janet Yellen’s view that the economy is rebounding from a 1 percent contraction in the first quarter caused largely by harsh winter weather.

Eased Concern

Tepper, founder of $20 billion hedge-fund firm Appaloosa Management LP, said today in an interview with CNBC that his concerns over the market have eased. On May 15, he described the market as ‘‘kind of dangerous’’ and expressed nervousness because the economy wasn’t expanding at a sufficient pace.

The S&P 500 has rebounded 6.9 percent since a selloff in small-cap and Internet shares spread to the broader market, dragging the index to a two-month low in April. It advanced 2.1 percent in May for a fourth consecutive monthly increase. The measure trades at 16.4 times the projected earnings of its members, up from a multiple of 14.8 at the start of February.

The Russell 2000 has also seen a recovery. The gauge has increased 5.3 percent since reaching a low in May. The technology-heavy Nasdaq 100 Index is at the highest level in 13 years, while the Nasdaq Composite Index is 1.4 percent below a 14-year high reached in March.

The Dow Jones Internet Composite Index rose 1.5 percent, the most in two weeks, as 39 of the 41 companies in the gauge increased.

Twitter, Amazon

Twitter rose 3 percent to $33.89. Pacific Crest rated the shares outperform, projecting a gain in their price to $45 in 12 months. The company has jumped 6.7 percent in the past three days, paring its loss for the year to 47 percent. Amazon.com surged 5.5 percent to $323.57 after breaking above its average price for the past 50 days. TripAdvisor Inc. and Pandora Media Inc. added more than 2.8 percent.

Ciena surged 18 percent, its biggest gain since 2011, to $22.48. The provider of fiber-optic networking gear for carriers such as AT&T Inc. reported second-quarter revenue and profit that exceeded analyst forecasts.

The Chicago Board Options Exchange Volatility Index fell 3.3 percent to 11.68 today. The gauge of U.S. equity volatility known as the VIX dropped to 11.36 on May 23, its lowest level since March 2013.

All 10 major industries in the S&P 500 rose, with industrial and financial shares gaining the most. Phone companies were little changed as a group.

Sprint dropped 4 percent to $9.02. The third-largest U.S. wireless carrier is nearing an agreement that could value T-Mobile US Inc. at almost $40 a share, according to people with knowledge of the matter. The deal covering the price, capital structure and termination fee could be announced as soon as July, the people said.

T-Mobile fell 2.3 percent to $33.49.

To contact the reporter on this story: Joseph Ciolli in New York at jciolli@bloomberg.net

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

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