U.S. Stocks Rise on Reports Policy Makers May Take Action
U.S. stocks advanced, erasing a weekly loss for the Standard & Poor’s 500 Index, amid reports policy makers may take steps to assist economies battered by Europe’s sovereign debt crisis.
All 10 groups in the S&P 500 rose, led by telephone service providers. Home Depot Inc. and Walt Disney Co. (DIS) added at least 2.1 percent after data on inflation and jobless claims fueled bets the Federal Reserve will act to spur growth. Exxon Mobil Corp. (XOM), the largest energy producer by market value, increased 1.9 percent as oil rallied. Travelers Cos. and Bank of America Corp. (BAC) gained at least 2.1 percent as financial companies jumped.
The S&P 500 gained 1.1 percent to 1,329.10 at 4 p.m. in New York. The benchmark index for American equities is up 0.3 percent for the week. The Dow Jones Industrial Average rose 155.53 points, or 1.2 percent, to 12,651.91 today. Trading volume for exchange-listed stocks in the U.S. was about 6.6 billion shares, 2.5 percent below the three-month average.
“It’s a sign that they’re talking and that’s good,” Rod Smyth, the Richmond, Virginia-based chief investment strategist of Riverfront Investment Group, which manages $3 billion, said in a telephone interview. “Equity investors are poised with the knowledge that if European policy makers can figure out a way to stem the vicious cycle that’s been building, then stocks look really cheap and bonds look expensive.”
The S&P 500 tumbled as much a 9.9 percent from a four-year high in April through June 1 amid lower-than-forecast economic data and concern Europe’s debt crisis was spreading. The index has rebounded 4 percent since, and trades at 13.4 times its companies’ reported earnings, below the average of 16.4 since 1954, according to data compiled by Bloomberg. The S&P 500 fell yesterday as borrowing costs rose in Italy and Germany before elections in Greece on June 17 that may determine whether the Mediterranean nation will leave the euro area.
Stocks extended gains today amid reports of plans by central banks. Bloomberg News reported that U.K. Chancellor of the Exchequer George Osborne and Bank of England Governor Mervyn King are preparing two programs to increase the flow of credit. Reuters said that central banks are prepared to take action if needed to boost liquidity in financial markets if the Greek elections cause tumultuous trading, citing officials linked to the Group of 20 nations.
Speculation grew that the Federal Reserve will discuss stimulus efforts at its meeting next week after reports showed jobless claims unexpectedly climbed by 6,000 to 386,000 last week and the cost of living fell by the most in more than three years.
“Good inflation data and weak employment is a good stage for a Fed policy response,” Kevin Shacknofsky, who helps manage about $5 billion for Alpine Mutual Funds in Purchase, New York, said in an e-mail. “We are at the stage where bad news is good news in terms of a policy response. Jobs will be the critical factor that influences the Fed.”
Home Depot (HD), the largest U.S. home-improvement retailer, climbed 2.3 percent to $52.16 and Disney, the world’s largest entertainment company, advanced 2.1 percent to $47.18. Exxon Mobil increased 1.9 percent to $82.13 and Cabot Oil & Gas Corp. (COG) jumped 8.6 percent to $35.04 as energy shares in the S&P 500 gained 1.7 percent as a group.
Travelers added 2.4 percent to $63.12, the biggest gain in the Dow, while Bank of America, the second-biggest U.S. lender, climbed 2.1 percent to $7.66 as financial stocks rallied 1.3 percent.
Telephone companies jumped 1.9 percent as a group. Consumer discretionary stocks, which include retailers, hotel chains and restaurant companies, climbed 1.4 percent. An S&P index of homebuilders advanced 4.1 percent, as Lennar Corp. (LEN) increased 3.6 percent to $25.55 and PulteGroup Inc. (PHM) added 5.2 percent to $8.85.
International Game Technology (IGT) rose 14 percent, the most in the S&P 500, to $15.12. The maker of casino machines announced a share buyback plan of as much as $1 billion in an effort to reward investors after a 23 percent stock drop this year.
Kroger Co. (KR) climbed 6.1 percent to $22.58. The largest U.S. grocery-store chain said profit for the year ending Jan. 31 will be as much as $2.40 a share, up from a prior forecast of as much as $2.38. Kroger also said its board approved a new $1 billion share buyback program, replacing an authorization that was exhausted on June 12.
Family Dollar Stores Inc. (FDO) advanced 4 percent to a record $72.85. The discount retailer was raised to buy from neutral at Cleveland Research Co. on expectation new merchandising is driving up sales.
Edwards Lifesciences Corp. (EW) rose 7 percent to $96.88 for the third-biggest advance in the S&P 500. The company won the backing of U.S. advisers for an expanded use of its Sapien heart valve as an alternative to open-heart surgery.
The Fed, which will gather two days after the Greek election, has identified the country’s exit from the euro as an outcome that would deepen the crisis and threaten the U.S. expansion. The central banks bought $2.3 trillion of bonds in two rounds of so-called quantitative easing from 2008 through 2011 to stimulate growth through lower borrowing costs.
Chairman Ben S. Bernanke told lawmakers last week the “central question” confronting the Fed at its June 19-20 meeting is whether growth is fast enough to make “material progress” reducing unemployment. Fed officials, including Vice Chairman Janet Yellen, have said there’s scope for further easing at some point to reduce a jobless rate persisting above 8 percent.
“We’re still on the fence right now whether there is going to be another round of quantitative easing,” Michael Mullaney, who helps manage $9.5 billion as chief investment officer at Fiduciary Trust in Boston, said in a phone interview. “We’re going to be cautious for the foreseeable future. There’s so many banana peels on the floor right now you can slip on any one of them at any time.”
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