US stocks rose from three days of losses yesterday, led by banks after news of more favourable capital requirements and optimism over Greece’s austerity plan, but investors cautioned against high hopes.
Yesterday’s gains were a welcome sign but investors were cautious about reading too much into them. The S&P 500 has fallen as much as seven per cent since April and yesterday’s volume was lower than average.
“We don’t see this being the start of a major rally,” said Tim Ghriskey, chief investment officer of Solaris Asset Management in Bedford Hills, New York. “But this is welcome strength in the market and hopefully a welcome short-term bottom.”
Financials, the worst performing sector this year, posted strong gains. The S&P financial index rose 1.1 per cent, with shares of Bank of America up 3.1 per cent to $10.85 and JPMorgan Chase up one per cent at $39.88.
On Saturday, global banking regulators in Basel said banks need to boost capital by 2.5 percentage points, not the three percentage points originally feared. The rules mean banks could have more funds for dividends and share buybacks.
Other sectors that have sold off sharply in the recent bout of weakness posted strong gains. The S&P’s technology sector gained 1.4 per cent and the consumer discretionary index rallied 1.2 per cent.
Investors are hoping the Greek parliament this week will pass an unpopular austerity programme needed to get the next bailout payment. Also helping to ease worry, French President Nicolas Sarkozy said his government had an agreement with French banks on rolling over Greek debt into new 30-year bonds.
The Dow Jones industrial average gained 108.98 points, or 0.91 per cent, to 12,043.56. The Standard & Poor’s 500 Index rose 11.65 points, or 0.92 per cent, to 1,280.10. The Nasdaq Composite Index added 35.39 points, or 1.33 per cent, to 2,688.28.
Jim Awad, managing director at Zephyr Management, said the market was overly optimistic. “The rally is meaningless and suspect based on premature hopes about Greece,” he said.
The fact the benchmark S&P 500 index was holding above its 200-day moving average of around 1,260 was seen as a sign of technical support after two months of heavy selling.
In economic news, US consumer spending stagnated in May, according to a government report.