By Alexandra Scaggs
U.S. stocks rallied Tuesday, continuing a rebound from an
early-October swoon and leaving the S&P 500 and the Nasdaq with
gains for the month.
Fueling the bounce has been renewed confidence in the U.S.
economy and corporate earnings, even as the Federal Reserve is
expected to announce Wednesday it is ending the bond purchases it
has been using to ease monetary policy. On Tuesday, stock prices
gained with help from an unexpected jump in consumer confidence to
its highest level since 2007. That encouraged investors to move
back into areas that are seen as riskier, traders said, after they
had fled some of those sectors during steep stock-market declines
earlier this month. Small-cap stocks, energy shares and technology
stocks posted the strongest gains, and safe-haven investments such
as Treasurys declined.
The tech-heavy Nasdaq Composite Index led major benchmarks,
gaining 78.36 points, or 1.7%, to 4564.29. The index is up 1.6% in
October.
The S&P 500 added 23.42 points, or 1.2%, to 1985.05 on
Tuesday; it has gained 0.6% in October. The Russell 2000 Index, a
small-stock benchmark, rallied 31.98 points, or 2.9%, to
1149.45.
The Dow Jones Industrial Average rose 187.81 points, or 1.1%, to
17005.75. It remains slightly lower for the month, down 0.2%.
October initially looked like it would be a tough month for
stock-market bulls, as global benchmarks fell on worries about
economic growth. At stocks' latest closing lows on Oct. 15, the Dow
had shed 5.3% for the month and was down 6.6% from its all-time
high. The S&P 500 had a 5.6% loss and was 7.4% off its
September record high. The Nasdaq had lost 6.2% and was trading
8.3% below its 2014 high.
But since then, stocks have largely recovered, as companies have
posted better third-quarter results than expected, and some
economic reports have been better than anticipated. The S&P 500
and Dow are now less than 2% below their all-time highs from
mid-September.
"We thought the selloff was unfounded, and now people are buying
into the notion that it wasn't based on any change in the
fundamentals," said David Lefkowitz, equity strategist with UBS
Wealth Management. "It's very good for the stock market."
Stocks that have struggled in recent weeks rallied, outpacing
the broader market's rise. Two sectors that led the early-October
declines rallied alongside the Russell 2000. The Dow Jones
Transportation Average jumped 1.5%, reaching a record high. Energy
shares were the biggest gainers in the S&P 500, advancing 2.3%.
The sector has struggled over the last three months, down 13%
compared with the S&P 500's 0.3% gain.
"People have woken up to the fact that maybe global growth isn't
going to collapse...so the sectors that are more economically
sensitive are being bought," said Mark Luschini, chief investment
strategist for Janney Montgomery Scott, which helps oversee $58
billion in assets. He added that short-term investors had bet on
further declines in some of those riskier sectors and traders could
be unwinding those bets.
Investors are now looking ahead to a statement from the Federal
Reserve, due Wednesday at the end of its two-day meeting. The
central bank is expected to end its bond-buying program, but
traders say they will be closely watching the outlook for
short-term interest rates. The Fed is expected to raise short-term
rates in 2015.
In economic news, the upbeat consumer-confidence reading
outshined a surprise decline in durable-goods orders. Orders for
durable goods fell 1.3% in September, marking the second
consecutive month of declines, while a rise of 0.7% was expected.
Stocks pared gains after the report, but only briefly.
A report on home prices in 20 U.S. cities from
S&P/Case-Shiller showed a rise of 5.6% in August, while
economists forecast a rise of 5.7%. A report on manufacturing in
the mid-Atlantic region beat forecasts, as the Federal Reserve Bank
of Richmond's manufacturing index rose to 20 in October, while a
slide to 10 was expected.
A broad advance in European stocks helped set a positive tone
early in the session. The Stoxx Europe 600 gained 1%. Crude-oil
futures gained 0.5% to $81.42 a barrel. Gold futures edged up less
than 0.1% to $1229.20 an ounce.
Demand for safe-haven U.S. government debt declined, pushing the
yield on the 10-year Treasury note up to 2.284% from 2.257% on
Monday.
Third-quarter earnings from companies have been better than
expected in recent sessions. With 244 companies reporting, the
S&P 500 is on pace to grow earnings 6% in the third quarter,
according to FactSet, above the 4.5% expected before the start of
reporting season.
"Even with European [economic] data deteriorating, these
companies' earnings are able to keep grinding higher," said Michael
Purves, chief global strategist at Weeden & Co. "That's a very
important sign here."
In earnings news, Pfizer Inc. advanced 0.2% after it reported
third-quarter results that beat analysts' estimates and tightened
its profit and revenue outlook for the year.
DuPont Co. edged up 0.1% after it said earnings jumped 52% in
its third quarter on lower expenses.
Aetna Inc. lifted its earnings outlook for the year and reported
third-quarter results that beat expectations. But shares fell 2.5%.
The stock is up 13% so far this year.
Twitter Inc. sank 9.8% after it said Monday it added 13 million
monthly active users in the third quarter, up 4.8%. That is a
slower pace than the 6.3% added in the previous quarter. The
slowing user growth overshadowed Twitter's revenue, which more than
doubled in the quarter and prompted an increase in full-year
guidance.
Coach Inc. reported a decline in profit and sales in the latest
quarter, with a slump in North American sales offsetting sales
gains internationally. Results topped expectations, but shares fell
5.9%.
Write to Alexandra Scaggs at alexandra.scaggs@wsj.com