U.S. stocks ended the worst January since 2009 with the best one-day gains in more than four months, after earnings from Microsoft Corp. exceeded expectations and the Bank of Japan stepped up monetary stimulus.
The equity rally accelerated in the final hour of trading, with the strong finish a fitting end to a weak month that featured sharp reversals on an almost daily basis. Microsoft led the surge Friday with its biggest gain in three months. Nine of the S&P 500’s 10 main groups rose at least 1.7 percent. Amazon.com was a blemish, tumbling 7.6 percent as earnings for the holiday quarter missed estimates.
The Standard & Poor’s 500 Index rose 2.5 percent to 1,940.24, the strongest advance since Sept. 8. Still, the gauge slumped 5.1 percent for the month, its worst start to a year since the height of the financial crisis. The Dow Jones Industrial Average advanced 396.66 points, or 2.5 percent, to 16,466.30, its best day in five months. The Nasdaq Composite Index added 2.4 percent, still finishing with its worst month since May 2010. The Russell 2000 Index jumped 3.2 percent, capping its worst month since 2011 with its biggest rally in four years.
“Part of the strength in the markets today is central banks in the developed world being accommodative, and the other is a surprisingly strong Chicago manufacturing number that was really a blowout,” said Phil Orlando, who helps oversee $360 billion as chief equity-market strategist at Federated Investors Inc. in New York. “Earnings have been better than expected so far.”
The S&P 500’s rally lifted it to a second consecutive week of gains for the first time since Dec. 4.
Prior Friday’s unexpected action from the Bank of Japan to adopt a negative interest-rate strategy, the European Central Bank signaled last week it could boost stimulus as soon as March. The Federal Reserve said Wednesday it was watching to see how the global economy and markets impact the U.S. outlook.
New data showed the economy expanded at a slower pace in the fourth quarter, in line with forecasts, as households tempered spending while businesses cut back on capital investment and made further adjustments to inventories. A separate report showed consumer confidence cooled in January, shaken by the stock-market downturn, while a gauge on Chicago-area manufacturing jumped more than forecast to the highest in a year.
“With today’s GDP there’s modest economic growth and Japan overnight pursuing lower interest rates means the Fed is not likely to raise four times this year,” said Michael Arone, the Boston-based chief investment strategist at State Street Global Advisors’ U.S. Intermediary Business. “Events like what happened with Japan going to negative interest rates puts downward pressure on our own interest rates and impacts the Fed’s ability to raise rates.”
Anxiety fueled by China’s slowdown and a rout in oil prices have battered stocks since the start of the year. The rout has pushed valuations down to 2014 levels and erased more than $2 trillion from the value of American equity markets. The S&P 500 is down 8.9 percent from its record set in May, after climbing 4.4 percent from a 21-month low reached on Jan. 20.