U.S. stocks rallied, driving the Standard & Poor's 500 index up from the cheapest valuations since 2009, as weaker-than-estimated economic data reinforced optimism the Federal Reserve will act to spur economic growth.
The Dow Jones industrial average closed up 322.11 points, or 2.97%, at 11,176.76; the S&P 500 rose 38.53, or 3.43%, closing at 1,162.35; and the Nasdaq composite was up 100.68, or 4.29%, to close at 2,446.06. All numbers are preliminary.
“There's plenty of evidence that the economy has slowed,” Kevin Caron, market strategist at Stifel Nicolaus, said in a telephone interview. His firm has more than $115 billion in client assets. “The speculation would be that it's possible that the Fed will say something designed to calm markets and provide a bit of encouragement.”
Equities advanced after the Fed Bank of Richmond's business activity index dropped to -10 in August, the weakest since June 2009. The monthly survey of producers in the region covering the Carolinas, Maryland, Virginia and West Virginia corroborated factory reports from Philadelphia and New York that pointed to weakness in the industry. Also, the Commerce Department said sales of new U.S. homes declined more than projected in July to the lowest level in five months.
The S&P 500 fell 16% from July 22 through the end of last week in its biggest four-week loss since March 2009. The four-week global equity rout has erased $8 trillion from share values as Europe's debt crisis and worsening economic reports raised concern the global economic recovery is faltering.
Stocks briefly pared gains after a 5.9-magnitude earthquake in Virginia shook Washington and New York. More than 66 million shares changed hands on U.S. exchanges at 1:55 p.m. EDT following the earthquake, more than any minute since just after the market opened at 9:30 a.m.
Central bankers from around the world meet this week in Jackson Hole, Wyo., for a conference that last year resulted in Fed Chairman Ben S. Bernanke signaling a second round of asset purchases, known as QE2, that buoyed asset markets. The S&P 500 rose 28 percent between Aug. 26, 2010, and Feb. 18 after he foreshadowed the $600 billion Treasury program.
Mr. Bernanke “probably feels some pressure from the stock market to respond,” Howard F. Ward, a money manager at GAMCO Investors, said on a Bloomberg TV show. “He should lay out a game plan of what he can do should the economic outlook warrant that.”