U.S. stocks rallied for a fourth day Thursday, wiping out losses for the year in the Standard & Poor’s 500 Index, as the European Central Bank unveiled an expanded stimulus plan and banks and transportation companies surged on better-than-forecast earnings.
KeyCorp led gains among banks after fourth-quarter results topped analyst estimates. Southwest Airlines Co. jumped to a record as profit rose 71 percent on lower jet fuel prices. Union Pacific Corp. added 4.8 percent as a strengthening U.S. economy and growing construction market boosted traffic on the rails in the fourth quarter. EBay Inc. increased 7.1 percent after entering a standstill agreement with activist investor Carl Icahn.
“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 S&P 500 gained 1.5 percent to 2,063.15, the highest since Dec. 30. The gauge climbed above its average price for the past 50 days. The Dow Jones Industrial Average climbed 259.70 points, or 1.5 percent, to 17,813.98. The Russell 2000 Index surged 2.1 percent, the most since Dec. 17. About 7.7 billion shares changed hands on U.S. exchanges today, 15 percent above the three-month average.
ECB President Mario 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.
“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.
A near-stagnant economy and the risk of deflation forced Draghi’s hand six years after the Federal Reserve took a similar step to inject cash into the U.S. The 67-year-old Italian’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.
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 Swiss National Bank shocked investors by dropping a cap on the franc.
In the U.S., three rounds of Fed 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.
A majority of those surveyed in a Bloomberg poll forecast that the S&P 500 will rise in the next six months, while only a quarter see it declining. The index is trading at 17 times the projected earnings of its members, according to data compiled by Bloomberg. Valuations reached a five-year high at the end of last year.
Economic data on Thursday showed more Americans than forecast filed applications for unemployment benefits last week, a sign of lingering holiday turnover.
JetBlue Airways Corp. surged 7.9 percent to the highest since 2007.
Regional banks rallied. Regions Financial Corp., Hudson City Bancorp Inc. and M&T Bank Corp. soared more than 4.3 percent.
Larger institutions also climbed. JPMorgan Chase & Co., Bank of America Corp. and Goldman Sachs Group Inc. surged at least 2.8 percent. Banks have been the worst performers among S&P 500 groups this year, with a loss of 2.9 percent.
EBay increased 7.1 percent, the biggest gain since September.