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S&P 500 Erases 2015 Loss, Bonds Rally on ECB Stimulus; Oil Drops

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The Standard & Poor’s 500 Index rallied, erasing its loss for the year, while European equities surged with government bonds as European Central Bank President Mario Draghi expanded stimulus. The euro weakened to an 11-year low and oil tumbled.

The S&P 500 rose 1.5% to 2,063.33 at 4 p.m. in New York. The gauge capped a fourth straight gain, its longest streak this year, as banks and transportation companies surged amid better-than-forecast earnings. The Stoxx Europe 600 Index surged 1.7% to extend a seven-year high. The yield on 10- year Spanish bonds dropped to a record as euro-area bonds spiked higher. The euro declined 2.2% to $1.1360. Gold closed above $1,300 an ounce for the first time since August, while oil slid as U.S. supplies surged.

Draghi announced an expanded asset-purchase program, including private and public securities, of up to 60 billion euros ($69 billion) a month. The buying will continue through September 2016. The announcement came after the ECB kept benchmark rates unchanged at record lows. A U.S. report showed more Americans than forecast filed applications for unemployment benefits. The Dow Jones Transportation Average rallied 2.8% and the KBW Bank Index surged 3.6% amid corporate results.

“It’s that halo effect of the follow-through on ECB finally coming to the table and embracing a pretty material stimulus program,” Todd Lowenstein, who helps manage $16 billion at Highmark Capital Management in Los Angeles, said by phone. “It brings some hope that Europe will get pointed in the right direction.”


The ECB pledged to buy government bonds as part of an asset-purchase program worth around 1.1 trillion euros. In addition to monthly purchases, the ECB also reduced the cost of its long-term loans to banks.

In the U.S., three rounds of Federal Reserve stimulus helped the S&P 500 more than triple from a bear-market low in March 2009. The central bank ended its quantitative easing program three months ago.

Corporate results determined some of the biggest moves in today’s equities trading. Southwest Airlines Co. surged 8.3% for the second-steepest advance in the S&P 500. Fourth- quarter profit rose 71%, topping analysts’ estimates, on lower jet fuel prices and solid demand across its U.S.-focused route network.

Banks, Trains

KeyCorp rallied 7.5% to lead banks higher. The regional lender’s results beat estimates. Regions Financial Corp., Hudson City Bancorp Inc. and M&T Bank Corp. soared more than 4.5%.

Larger institutions also climbed. JPMorgan Chase & Co., Bank of America Corp. and Goldman Sachs Group Inc. surged at least 2.8%. Banks have been the worst performers among S&P 500 groups this year, with a loss of 2.9%.

Union Pacific Corp. added 4.7% as a strengthening U.S. economy and growing construction market boosted traffic on the rails.

F5 Networks Inc. plunged 11% after forecasting profit and sales below analyst projections. American Express Co. sank 2.9% after saying it will cut more than 4,000 jobs this year, while EBay Inc. added 6.7% following its results.

Leon Cooperman, who runs Omega Advisors Inc., said stocks can extend their gains as the economy improves and corporate profits rise.

“There’s no basis to call for a market peak,” Cooperman, 71, said today in an interview on Bloomberg Television with Betty Liu. “It could be a couple more years.”

Forced Hand

European stocks rose for a sixth day, extending a rally that started after the Swiss National Bank’s unexpected move to abandon its currency peg against the euro stoked speculation the ECB would buy government bonds.

A near-stagnant economy and the risk of deflation forced Draghi’s hand today six years after the Fed took a similar step to inject cash into the U.S. The ECB president’s gamble is that the benefits of quantitative easing outweigh the threat of a backlash in Germany and that the ECB ends up bailing out profligate, reform-wary governments.

“Markets were expecting big and this sounds like a pretty big program, so that’s good news,” Karyn Cavanaugh, the New York-based senior market strategist at Voya Investment Management LLC, said by phone. Voya oversees $215 billion. “We were all expecting it and finally we got what we were looking for.”

The ECB’s shift exacerbates an emerging global divergence in monetary policy. While the Fed is now considering when to tighten credit, central banks in Denmark, Turkey, India, Canada and Peru all announced surprise rate cuts in the past week. The Danish central bank today cut its certificate of deposit rate to minus 0.35%. The Swiss National Bank shocked investors by dropping a cap on the franc.

Bond Moves

Treasuries initially rose after the ECB decision, as the plan fueled demand for higher-returning U.S. debt amid expectation the supply of global government securities will shrink. Treasury yields are higher than 17 of 25 developed countries, according to data compiled by Bloomberg.

Italy’s 10-year yield fell 14 basis points to 1.55%, the lowest since Bloomberg began collecting the data in 1993. Spanish 10-year yields declined 13 basis points to 1.41%, having touched 1.45%. German bund rates sank eight basis points to 0.45%.

Financial service companies in the Stoxx 600 rallied 3.2% to pace gains in the index. European mining and energy stocks also gained today, adding more than 2%. Health- care companies dropped for a second day.

The MSCI Emerging Markets Index advanced for a third day, rising 0.7% to close at the highest since Dec. 5. Emerging Equities

Gauges in Poland, Hungary and the Czech Republic increased at least 0.9%. Lender Banco Bradesco SA led gains in Brazil. Asian stocks jumped as China pumped funds into the financial system.

The People’s Bank of China conducted its first reverse- repurchase operation in a year, adding money to the financial system a day after saying it rolled over a 269.5 billion-yuan ($43.4 billion) lending facility to banks. China will avoid a hard landing, Premier Li said Wednesday in a speech at the World Economic Forum in Davos.

Russia’s Micex Index added 3%, extending a 3% advance on Wednesday, as oil gained for a second day. The ruble strengthened 1%.

Oil declined after a government report showed that U.S. crude supplies surged the most in almost 14 years. Inventories rose 10.1 million barrels in the week ended Jan. 16, the biggest gain since March 2001, according to the Energy Information Administration.

Oil, Gold, Silver

West Texas Intermediate crude for March delivery slipped 3.1%, to settle at $46.31 a barrel. Brent for March settlement fell 1.3% to end the session at $48.52 a barrel.

Silver headed for a bull market in its best start to a year in more than three decades as the ECB plan boosted demand for the metal as a store of value.

Silver for immediate delivery climbed 1.5% to $18.4017 an ounce, according to Bloomberg generic pricing. A settlement at $18.4064 would leave the metal up 20% from the closing low of $15.3387 in November, meeting the common definition of a bull market. This month, the price has jumped 17%, the biggest gain to start a year since 1983.

Gold futures for February delivery rose 0.5% to settle at $1,300.70 an ounce on the Comex in New York.

Copper declined the most in a week on concern that demand is slowing in China, the world’s biggest consumer of industrial metals. Copper for delivery in three months fell 1.8% to settle at $5,665 a metric ton ($2.57 a pound) on the London Metal Exchange. The price has declined 10% in January, heading for the biggest monthly drop since May 2012.

–With assistance from Sofia Horta e Costa, Cecile Vannucci and Lucy Meakin in London and Joseph Ciolli, Callie Bost, Susanne Walker, Zachary Tracer, Mark Shenk and Debarati Roy in New York.

— Check out ECB’s Draghi Commits to Trillion-Euro QE Plan to Fight Deflation on ThinkAdvisor.