U.S. Stocks Climb as G-20 Meeting Fuels Fed Easing Speculation
U.S. stocks rose, sending the Standard & Poor’s 500 Index to a fourth straight gain, after the Group of 20 nations pledged to avoid “competitive devaluation” of currencies and investors bet the Federal Reserve will announce further bond purchases next week.
DuPont Co., Kraft Foods Inc. and Walt Disney Co. climbed more than 1.4 percent to lead gains in the largest U.S. companies. Citigroup Inc. rallied 2.4 percent as Goldman Sachs Group Inc. added the shares to its “conviction buy” list. CommScope Inc. surged 30 percent as a private equity firm considers a takeover. Office Depot Inc. gained 3.5 percent after saying earnings will beat estimates.
The S&P 500 advanced 0.2 percent to 1,185.62 at 4 p.m. in New York, adding to three weeks of gains and climbing above its highest close since May 3. The Dow Jones Industrial Average rose 31.49 points, or 0.3 percent, to 11,164.05.
“Global central banks have set a floor under the market and the risk of a double-dip recession is almost non-existent at this point,” said Oliver Pursche, co-manager of the GMG Defensive Beta Fund and president of Suffern, New York-based Gary Goldberg Financial Services, which manages $500 million. “Traders are not going to fight the Fed after it has come out and said it will support the market, they’re going to buy.”
Earnings-per share have topped analysts’ estimates at more than 86 percent of S&P 500 companies that have posted third- quarter results since Oct. 7, according to data compiled by Bloomberg. U.S. companies are poised to report their fourth straight quarterly earnings increase as speculation that the Fed will inject more money into the economy boosted investor confidence and offset uncertainty about global currency markets.
The Dollar Index, which measures the currency against a basket of six major peers, has slumped 7.3 percent since the end of August while the S&P 500 has rallied 13 percent. The Fed said on Oct. 20 that U.S. economic growth showed little sign of accelerating last month, bolstering speculation that the central bank will act to stimulate growth.
The dollar slid to a 15-year low of 80.41 yen today as G-20 finance chiefs meeting in South Korea vowed to avoid weakening currencies to lift exports, damping speculation that governments will buy the U.S. currency to deflate their own.
The G-20 meeting “has reaffirmed the status quo and going forward we are likely to see the Federal Reserve, the Bank of England and the Bank of Japan go on with quantitative easing,” said Kelvin Tay, the chief investment strategist for UBS AG Wealth Management in Singapore. Recent stock gains have “been largely driven by the fact that the U.S. dollar has actually weakened quite substantially against all major currencies since Ben Bernanke’s Jackson Hole speech.” Bernanke said on Aug. 27 in Jackson Hole, Wyoming, that he has the tools to prevent another recession.
Stocks extended gains after sales of U.S. existing homes jumped a record 10 percent in September, gaining for a second month as the industry that precipitated the worst recession since the 1930s overcomes mounting foreclosures, the National Association of Realtors said in Washington.
DuPont, the third-largest U.S. chemical maker, rose the most in the Dow, climbing 1.9 percent to $47.70 as materials producers gained the most among 10 industries in the S&P 500.
Kraft rallied 1.8 percent to $32.47. Warren Buffett’s Berkshire Hathaway Inc. opted against writing down its holdings in the world’s second-largest food company because of the prospects its shares will recover, the billionaire’s company told regulators.
Disney, the world’s biggest media company, added 1.4 percent to $35.46, leading consumer discretionary stocks to a 0.6 percent increase, the second-most out of 10 industry groups in the S&P 500.
Citigroup gained 2.4 percent to $4.21. Goldman Sachs has a price estimate of $5.50 on the shares, which is 34 percent higher than their last closing price of $4.11 apiece.
CommScope surged 30 percent to $30.16 after saying Carlyle Group has held talks about acquiring all of the communications equipment maker’s stock for $31.50 a share, or $3 billion.
Office Depot advanced 3.5 percent to $4.79. The second- largest U.S. office-supply chain said preliminary earnings for the quarter ended Sept. 25 were about 18 cents a share, including a 15-cents-a-share tax benefit. The average estimate of analysts was for a loss of 1 cent a share. Office Depot also said Steve Odland, chairman and chief executive officer since 2005, has resigned effective Nov. 1. Neil R. Austrian will serve as interim chairman and CEO.
Banks and diversified financial companies posted the biggest declines among 24 groups in the S&P 500. Bernanke said the central bank and other regulators are “intensively” examining financial firms’ home-foreclosure practices and expect preliminary findings next month.
“We have been concerned about reported irregularities in foreclosure practices at a number of large financial institutions,” the Fed chairman said today at a housing conference in Arlington, Virginia.
RadioShack Corp. fell the most in the S&P 500, slumping 9 percent to $20.74. The consumer-electronics retailer reported third-quarter gross margin fell to 45.4 percent from a year earlier, which Janney Montgomery Scott LLC analyst David Strasser said was disappointing.
Eastman Chemical Co. had the second-biggest gain in the S&P 500, adding 5.1 percent to $82.59. The largest U.S. maker of plastics for water bottles agreed to sell the PET business and related assets and technology of its Performance Polymers segment to DAK Americas LLC for $600 million.
“There’s a bias to the positive in the market,” said Richard Sichel, who oversees $1.4 billion as chief investment officer at Philadelphia Trust Co. “The tone of the news, from earnings to the feeling that we will see improvement in economic numbers and that the Fed will do all it can. Add all of that together and it makes investors feel more confident right now.”
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