U.S. stocks rallied Friday, erasing an early-morning 221-point decline in the Dow Jones industrial average as Federal Reserve Chairman Ben S. Bernanke indicated the economy isn’t deteriorating fast enough to warrant any immediate stimulus amid valuations close to the lowest in 2.5 years.
The S&P 500 rallied 17.53 points, or 1.51%, to close at 1,176.80 after slumping 2% following Mr. Bernanke’s remarks at a conference in Jackson Hole, Wyo.
The benchmark gauge has risen 4.5% since Aug. 19 and headed for the first weekly gain since July.
The Dow climbed 134.72 points, or 1.21%, to 11,284.54.
The Nasdaq composite rose 60.22 points, or 2.49%%, to 2,479.85. All numbers are preliminary.
“This is exactly what the market wanted,” Keith Springer, who oversees $120 million as the president of Springer Financial Advisors, said in a telephone interview. “This is good news for investors. It’s telling you there’s no reason to panic because they have the impression that the economy is getting better. If he threw more money at the economy, it would have given the impression that things were out of control and the Fed was panicking.”
Stocks gyrated following Mr. Bernanke’s speech, in which he said the central bank still has tools to stimulate the economy without signaling he will use them. He echoed comments of dissenting members of the Federal Open Market Committee, who said U.S. economic data aren’t pointing to a recession.
“Although important problems certainly exist, the growth fundamentals of the United States do not appear to have been permanently altered by the shocks of the past four years,” Mr. Bernanke said in prepared comments. “It may take some time, but we can reasonably expect to see a return to growth rates and employment levels consistent with those underlying fundamentals.”
Threats facing the economy aren’t as grave as they were when Mr. Bernanke pledged new stimulus at Jackson Hole in August 2010, according to Russ Koesterich, global chief investment strategist for the iShares unit of BlackRock Inc. Solutions such as the so-called quantitative easing program to purchase Treasury notes may be less effective now, said Mr. Koesterich, whose firm oversees $3.66 trillion.
“This is pretty much what we expected,” he said. “The economic data points are likely going to continue to be weak, but the market already knows that. If you have a period when economic data is poor, but not as bad as people expect, you can actually see some relief in the market.”