U.S. Stocks Advance as Fed Becomes More Optimistic About Growth
Feb. 16 (Bloomberg) -- Bloomberg's Deborah Kostroun reports on the performance of the U.S. equity market today. Stocks gained, pushing the Standard & Poor’s 500 Index to a 32-month high, as a higher forecast for economic growth from the Federal Reserve, improving earnings and takeovers bolstered confidence in equities. Bloomberg's Pimm Fox also speaks. (Source: Bloomberg)
U.S. stocks gained, pushing the Standard & Poor’s 500 Index to a 32-month high, as a higher forecast for economic growth from the Federal Reserve, improving earnings and takeovers bolstered confidence in equities.
Dell Inc. surged 12 percent, the most since December 2008, as earnings beat analysts’ estimates on business spending. Deere & Co. gained 2.4 percent to a record after boosting its full- year profit forecast. Genzyme Corp. rose 1.1 percent as Sanofi- Aventis SA agreed to buy the company for $20.1 billion and Family Dollar Stores Inc. soared 21 percent as Nelson Peltz offered to acquire the retailer for as much as $7.6 billion.
The S&P 500 rose 0.6 percent to 1,336.32 at 4 p.m. in New York, the fourth gain in five days. The Dow Jones Industrial Average rallied 61.53 points, or 0.5 percent, to 12,288.17. The Nasdaq Composite Index added 0.8 percent to 2,825.56, while the Russell 2000 Index climbed 1 percent to 828.37. Both gauges rose to the highest level since October 2007.
“The more optimistic view of the Federal Reserve is confirmed in part by the financial performance of major U.S. corporations,” said Richard Skaggs, senior equity strategist at Loomis Sayles & Co. in Boston, which manages $152 billion. “Frankly we’re encouraged to see the Fed take note of the improvement that is seen in some quarters.”
The S&P 500 has gained 6.3 percent this year, adding to 2010’s 13 percent rally, amid government stimulus measures and higher-than-estimated corporate profits. The gauge needs to rise 1.3 percent to 1,353.06 in order to complete a 100 percent rally from its 12-year low in March 2009. Earnings topped estimates at 72 percent of the 371 companies in the S&P 500 that reported since Jan. 10, according to data compiled by Bloomberg.
Fed Meeting
Stocks extended gains today after minutes from the Fed’s last policy meeting showed officials “continued to express disappointment in both the pace and the unevenness of the improvements in labor markets,” while also judging the recovery to be on a “firmer footing.” Policy makers raised projections for economic growth this year and made little change to forecasts after 2011 or for unemployment and inflation.
Stock-index futures rose before the open of exchanges as Commerce Department figures showed that housing starts climbed 15 percent to a 596,000 annual rate. The median forecast in a Bloomberg News survey called for a 539,000 rate. Work started on 78 percent more dwellings with two or more units, overshadowing a drop in single-family houses that indicates the housing market continues to struggle.
An index of homebuilders in S&P indexes rose 1.7 percent as all of its 12 members rallied. KB Home advanced 2.1 percent to $14.64. Lennar Corp. climbed 1.9 percent to $20.85.
Wholesale Costs
“How can we not see confidence from investors and companies?” said Philip Orlando, the New York-based chief equity market strategist at Federated Investors Inc., which manages $341.3 billion. “We saw improvement in the housing area,” he said. “Dell blew out their numbers last night, which tells me we’ll have a powerful increase in technology spending. Companies have pristine balance sheets and are flush with cash. That should allow for more mergers and acquisitions.”
The S&P 500 pared a gain of as much as 0.7 percent after Israeli Foreign Minister Avigdor Lieberman said in a speech today that two Iranian gunboats are planning to sail tonight to Syria through Egypt’s Suez Canal. Lieberman’s comments were sent by his office in an e-mailed statement. Ahmed El Manakhly, head of traffic at the canal, said he had heard of no such plans.
Dell, Deere
Dell rose 12 percent to $15.56. The world’s third-largest personal-computer maker reported fourth-quarter profit excluding some costs of 53 cents a share, exceeding by 44 percent the average of estimates from analysts surveyed by Bloomberg.
Deere gained 2.4 percent to $95.86. The world’s largest farm-equipment maker forecast 2011 net income of $2.5 billion in the year ending Oct. 31, a 19 percent increase from the company’s previous estimate in November.
Genzyme rose 1.1 percent to $75.10. Sanofi-Aventis agreed to buy the company to add treatments for rare diseases. Genzyme’s stockholders will get $74 a share in cash. They also will receive so-called contingent value rights that entitle them to payments of as much as $14 a share depending on the performance of Genzyme’s experimental multiple-sclerosis drug Lemtrada and production levels of two of the company’s other products, the company said.
Family Dollar Stores soared 21 percent, its biggest gain since at least 1980, to $53.25. Nelson Peltz’s Trian Group offered to acquire the second-biggest dollar-store chain in the U.S. for $55 to $60 a share, according to a regulatory filing.
Cash at Work
Corporate America is putting its cash hoard back to work. In the first decline since mid-2009, S&P 500 companies reduced cash and short-term investments to $2.4 trillion from a record $2.46 trillion, according to data Bloomberg compiled from the most recent quarterly reports. Capital spending increased $22.3 billion, the biggest quarter-to-quarter jump since the end of 2004, to $142.8 billion, the highest level in two years.
Companies held their cash partly on concern that health- care mandates and increased financial regulation would add costs, said Barry Knapp, chief equity strategist for Barclays Plc in New York. Elections in November, in which Republicans won back a majority in the House of Representatives and gained seats in the Senate, have changed the climate for business, he said.
“Corporate America now views that there’s a check on the progressive policies of the last couple of years,” Knapp said. “Business confidence has improved, and that’s contributed to some increased risk appetite.”
Investors put more money into U.S. domestic-equity mutual funds last week than they have in almost two years as the S&P 500 rallied to a 32-month high. Domestic-stock funds took in $4.92 billion in the week ended Feb. 9, according to an e-mailed statement today from the Investment Company Institute, a Washington-based trade group. The last time the weekly deposits were higher was in May 2009, ICI data show.
To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net; Elizabeth Stanton in New York at estanton@bloomberg.net
To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net
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