By Chris Dieterich
U.S. stocks rallied Thursday after an upbeat report on factory
activity helped shift the focus away from concerns that the Federal
Reserve might raise interest rates sooner than expected.
The Dow Jones Industrial Average climbed 108.88 points, or 0.7%,
to 16331.05. The S&P 500 advanced 11.24 points, or 0.6%, to
1872.01, and the Nasdaq Composite Index gained 11.68 points, or
0.3%, to 4319.29.
The rally wiped away Wednesday's 0.6% drop in the S&P 500,
which came after Fed Chairwoman Janet Yellen said in a news
conference that the central bank could raise rates "something on
the order of six months" after it winds down its bond-buying
program. That could mean a rate increase as early as April of next
year, instead of later in 2015, as many had expected.
Stocks had started Thursday's session lower, but major
benchmarks turned higher after the Philadelphia Federal Reserve's
manufacturing-activity index for March topped expectations. Other
economic data were firm as well, giving credence to the idea that
soft reports clouding markets earlier this year reflected cold
winter weather rather than a true growth slowdown.
The rebound also came as investors rethought Ms. Yellen's
comments.
Rick Fier, director of equity trading at Conifer Securities,
said his firm's hedge-fund clients came in early Thursday with a
less worrisome view of Ms. Yellen's statement, believing that
Wednesday's snap reaction appeared to be disproportionate to the
information.
"The first response is computer-driven," he said. "This [buying
of stocks] is the humans who go home, rewatch the video, and think
things over."
Thursday's positive economic reports also helped sentiment.
"Things are mending, things are improving," said Natalie Trunow,
chief investment officer for equities at Calvert Investments, which
oversees just over $13 billion. Ms. Trunow said she prefers shares
of companies that generate the bulk of sales in the U.S. rather
than abroad, including smaller companies.
Traders said that activity was relatively subdued, as it has
been in most recent sessions.
Despite Thursday's rally in stocks, there were signs that
investors were girding for rising rates. Utility stocks and
real-estate investment trusts, which tend to lag as interest-rates
rise, trailed during Thursday's rally, trading lower for most of
the session.
"Following the Fed, we're seeing increased volume in
rate-sensitive names," said Stacey Gilbert, an exchange-traded-fund
strategist at Susquehanna Financial Group.
Financial stocks, which generally benefit from rising rates
because banks can borrow more cheaply and lend at higher marks,
outpaced the market. After the closing bell, the Fed's annual
"stress tests" for banks showed the largest U.S. firms are strong
enough to withstand a severe economic downturn, possibly opening up
the door for dividends and buybacks.
Concerns that rising interest rates will translate into pricier
home mortgages hit shares of home builders, despite upbeat
quarterly earnings from Lennar, which slipped $1.02, or 2.5%, to
$40.32.
But Lawrence Creatura, portfolio manager at Federated Investors,
said he has been buying shares of home builders since the start of
this year. The stocks have been bruised by weak economic data, and
he believes they are candidates to bounce back as the weather
improves.
"There has been confusion between economic trends and weather
trends," said Mr. Creatura, whose firm oversees about $376 billion.
"Weather doesn't just clog the highways; it clogs the economic
data, too."
The yield on the 10-year U.S. Treasury note ticked higher to
2.775% on Thursday, after jumping 0.09 percentage points to 2.770%
late on Wednesday. Yields rise as bond prices fall. Gold futures
lost 0.8% to settle at $1,330.50 a troy ounce.
Crude-oil futures slipped 0.9% to $99.43 a barrel. The dollar
edged higher against the euro and was little changed against the
yen.
The Stoxx Europe 600 ended marginally higher. Germany's DAX 30
added 0.2%, while the U.K.'s FTSE 100 declined 0.5%.
Asian markets were broadly lower on Fed concerns, with China's
Shanghai Composite shedding 1.4% to a two-month low and Japan's
Nikkei Stock Average falling 1.6%.
Among stock movers, ConAgra Foods rose 40 cents, or 1.4%, to
29.99 after the packaged-food company's earnings surpassed its
expectations, while sales narrowly missed Wall Street's
estimates.
Shares of 3-D printing companies fell after ExOne, down 4.35, or
9.9%, to 39.40, swung to a fourth-quarter loss and reported a drop
in revenue. Stratasys declined 1.90, or 1.6%, to 114.33; 3D Systems
fell 2.20, or 3.5%, to 60.48.
Jabil Circuit slipped 52 cents, or 2.9%, to 17.74 after the
contract electronics manufacturer swung to a loss in its most
recent quarter and reported a decline in revenue on significant
restructuring costs.
Write to Chris Dieterich at chris.dieterich@wsj.com