U.S. Stocks Advance Amid Speculation of Fed Stimulus Measures

U.S. stocks climbed, with the Standard & Poor’s 500 Index reaching its highest level in more than two months, amid speculation the Federal Reserve may introduce measures to stimulate economic growth tomorrow.

McDonald’s Corp. rose 1.6 percent after beating sales estimates. EBay Inc. gained 2.5 percent after former unit Skype SA filed for an initial public offering. Homebuilders rose after Deutsche Bank AG said the housing-market decline is almost over. Hewlett-Packard Co. plunged 8 percent after Chief Executive Officer Mark Hurd resigned. Target Corp. advanced 2 percent after Barron’s said the retailer’s focus on higher-margin goods may boost earnings.

The S&P 500 gained 0.6 percent to 1,127.79 as of 4 p.m. New York time, its highest close since May 17. The Dow Jones Industrial Average climbed 45.19 points, or 0.4 percent, to 10,698.75, the highest since May 13. About 5.8 billion shares traded on U.S. exchanges today, the lowest volume of the year.

“Equities are responding to a Fed that will be committed to provide a floor under economic growth and employment,” said Stephen Wood, who helps manage about $140 billion as chief market strategist for Russell Investments in New York. “The Fed will say that if the data warrant it, they have the procedure and the discipline to engage in quantitative easing.”

Fed Meeting

The Fed’s rate-setting committee meets tomorrow and investors are betting the central bank will announce it will purchase mortgage-backed securities or Treasuries, Jim Reid, head of fundamental strategy at Deutsche Bank, wrote in an e- mail today. The Federal Reserve Bank of San Francisco said a new recession in the next two years is a “significant possibility,” CNBC reported today. The bank said the possibility of a new recession in the next few months is unlikely, according to CNBC.

The S&P 500 increased 1.8 percent last week, sending the benchmark measure of U.S. stocks to the highest level since May, after companies from Pfizer Inc. to News Corp. beat earnings estimates and reports showed expansion in the service and manufacturing industries.

Strategists at the biggest U.S. investment banks are more bullish than ever for a second-half stock rally even as economists at the same firms say the recovery is slowing. The average strategist forecast last week for the S&P 500’s close on Dec. 31 was 1,242, requiring the biggest rally from this time of year to come true in Bloomberg data going back to 1999.

Stock Rallies

Tom Lee, the chief U.S. equity strategist at JPMorgan Chase & Co., says rising profits will drive the S&P 500 up 16 percent, while economist Michael Feroli says declining factory orders are cutting growth. At Bank of America Corp., David Bianco says the S&P 500 will reach 1,300 thanks to record-low interest rates. Ethan Harris says changing financial regulation is causing the expansion to slow.

McDonald’s climbed 1.6 percent to $72.92 after the world’s largest restaurant company said July same-store sales rose 7 percent, compared with the median analyst estimate for 5.1 percent growth in a Bloomberg survey. U.S. comparable-store sales rose 5.7 percent, topping the 5 percent forecast.

EBay increased 2.5 percent to $21.98 after Skype filed for an initial public offering of $100 million. The owner of e- commerce sites and the PayPal online payment service bought Skype in 2005 and sold the company to a group of investors led by Silver Lake for $2 billion in November. EBay retained a 30 percent stake in Skype.

Homebuilders Rise

A gauge of 12 homebuilders in S&P indexes rose 2.9 percent after D.R. Horton Inc., Meritage Homes Corp. and Ryland Group Inc. were raised to “buy” from “hold” at Deutsche Bank, which said the housing market is close to starting a sustainable recovery. D.R. Horton soared 4.3 percent to $11.06. Meritage Homes rallied 6.8 percent to $18.35 and Ryland Group jumped 7.8 percent to $17.68.

HP fell 8 percent to $42.60 for the biggest drop in the S&P 500. Hurd quit following an investigation that found he had a personal relationship with a contractor who received inappropriate payments from the company.

HP’s closing price was initially misreported on Aug. 6 as $41.85 instead of $46.30 because Direct Edge Holdings LLC reported trades without the correct code attached, making it appear the computer maker’s stock tumbled before Hurd quit.

Competitive Advantage

“Hurd leaving is going to be a big plus for competitors,” said Sachin Shah, a merger arbitrage specialist at Capstone Global Markets in New York, in an e-mail. “Could see Oracle now press on the gas on certain deals. Could even see Dell do something. They need to find a CEO -- ASAP. The competitive landscape is too strong.”

International Business Machines Corp., the world’s biggest computer-services company, gained 1.4 percent to $132. Dell Inc., the world’s third-largest personal-computer maker, fell 1.1 percent to $12.98. Oracle Corp., the world’s second-biggest software maker, lost 0.5 percent to $24.26.

Target rose 2 percent to $53.35. The second-largest U.S. discount retailer may rise as its focus on higher-margin goods and cost-control efforts boosts earnings, Barron’s reported.

Tyson Foods Inc. had the second-biggest decline in the S&P 500, losing 4.9 percent to $16.30. Shares of the largest U.S. meat processor should be sold, according to Goldman Sachs Group Inc., which cited a projected oversupply of chicken.

Visa Inc. climbed 3.6 percent to $74.74. The world’s biggest payments network may rise as growth in credit- and debit-card usage offsets tighter regulation on fees, Barron’s reported.

To contact the reporter on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net.

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U.S. Stocks Fluctuate

Jason Alden/Bloomberg

McDonald's Corp. beat sales estimates.

McDonald's Corp. beat sales estimates. Photographer: Jason Alden/Bloomberg

Aug. 9 (Bloomberg) -- Bloomberg's Courtney Donohoe reports on the performance of the U.S. equity market today. U.S. stocks climbed, with the Standard & Poor’s 500 Index reaching its highest level in more than two months, amid speculation the Federal Reserve may introduce measures to stimulate economic growth tomorrow. Bloomberg's Pimm Fox also speaks. (Source: Bloomberg)

Aug. 9 (Bloomberg) -- Jeff Matthews, author of “Pilgrimage to Warren Buffett’s Omaha” and founder of hedge fund Ram Partners LP, talks about Berkshire Hathaway Inc.'s second-quarter profit and outlook. Net income fell 40 percent to $1.97 billion, or $1,195 a share, the Omaha, Nebraska-based company said. Matthews speaks with Erik Schatzker on Bloomberg Television's "InsideTrack." (Source: Bloomberg)

Aug. 9 (Bloomberg) -- Abhey Lamba, managing director at International Strategy & Investment Group, talks about the departure of Hewlett-Packard Co. Chief Executive Officer Mark Hurd and outlook for the company. Hurd resigned Aug. 6 after an investigation found inaccurate expense reports and a personal relationship with a contractor named Jodie Fisher, who is a former actress and reality TV contestant. Lamba speaks with Erik Schatzker on Bloomberg Television's "InsideTrack." (Source: Bloomberg)

Aug. 10 (Bloomberg) -- James Paulsen, chief investment strategist at Wells Capital Management, talks with Bloomberg's Susan Li about his investment strategy for U.S. stocks. Paulsen, speaking from Minneapolis, Minnesota, also discusses the outlook for the U.S. economy, Treasuries and Federal Reserve monetary policy. (Source: Bloomberg)