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S&P 500 rallies most in one year on ECB stimulus, Apple earnings

Bloomberg - U.S. stocks surged, sending the Standard & Poor’s 500 Index to its biggest gain in a year, as investors speculated the European Central Bank will boost economic stimulus and Apple Inc. forecast record sales.

The S&P 500 climbed 2 percent to 1,941.24 at 4 p.m. in New York, its best gain since October 2013. The equity gauge is up 4.2 percent since Oct. 15 in the biggest four-day rally since January 2013. The Dow Jones Industrial Average climbed 215.33 points, or 1.3 percent, to 16,615 today. The Nasdaq 100 surged 2.6 percent, the most since January 2013. Trading in S&P 500 stocks was 14 percent above the 30-day average.

“We’re hearing about the ECB buying bonds,” Benjamin Dunn, president of Alpha Theory Advisors, which advises hedge funds with about $6 billion in assets, said in a phone interview from Crested Butte, Colorado. “The market’s a sugar addict and the sweet nectar of free money, any kind of incremental liquidity from a central bank, whether it’s Europe or China, is what the market’s looking for.”

The ECB bought Italian covered bonds as it returned to the market for a second day under its asset purchase program, according to two people familiar with the matter. Debt issued by Intesa Sanpaolo SpA was included in the purchases, according to one of the people, who asked not to be identified because the information is private.

ECB Stimulus

The ECB entered the 2.6 trillion-euro ($3.3 trillion) covered bond market after President Mario Draghi unveiled plans last month to bolster companies’ and households’ access to financing. Draghi, who also included asset-backed securities in the program, intends to expand the bank’s balance sheet by as much as 1 trillion euros to stave off deflation in the euro area.

U.S. stocks have rallied after St. Louis Federal Reserve Bank President James Bullard said on Oct. 16 that policy makers should consider delaying the end of bond purchases. He was the first Fed official to publicly suggest the central bank should extend its asset-purchase program when policy makers meet later this month.

Quantitative Easing

Bank of America Merrill Lynch strategists said in a report today that another 10 percent decline in U.S. stocks might spark speculation of a fourth round of quantitative easing from the Fed. That would mimic how the Fed acted following equity declines of 11 percent in 2010 and 16 percent in 2011.

About 79 percent of S&P 500 companies that have reported quarterly results this season exceeded profit projections, while 61 percent beat revenue estimates. Profit for index members rose 5.9 percent in the third quarter and sales increased 4 percent, analysts projected. Broadcom Corp. and Yahoo! Inc. are among the 24 S&P 500 companies reporting today.

“Now we can finally focus on earnings in the U.S.,” Kully Samra, who helps manage U.K. clients at Charles Schwab Corp. in London, said by phone. His firm oversees about $2.4 trillion globally. “Apple’s numbers were stunning, so that should help markets. So far, earnings numbers look OK.”

To contact the reporters on this story: Namitha Jagadeesh in London at njagadeeshbloomberg.net; Oliver Renick in New York at orenick2bloomberg.net To contact the editors responsible for this story: Lynn Thomasson at lthomassonbloomberg.net Jeremy Herron