U.S. Stocks Gain for Week as Economy Trumps Fed Stimulus

U.S. stocks rose for the week, giving the Standard & Poor’s 500 Index its second straight weekly advance, as better-than-estimated economic data tempered concern over a possible scaling back of Federal Reserve stimulus.

Auto companies and retailers rallied amid investor optimism over sales gains. Ford Motor Co. and General Motors Co. climbed more than 4 percent, and Abercrombie & Fitch (ANF) Co. jumped 8.8 percent. U.S. regional banks rose as analysts said the group would benefit from the latest round of global standards. Apple Inc. climbed 5.3 percent. Homebuilders slumped as higher Treasury yields fueled concern over rising interest rates.

The S&P 500 (SPX) added 1.6 percent to 1,631.89 over the four sessions in a holiday-shortened week. The Dow Jones Industrial Average rose 226.24 points, or 1.5 percent, to 15,135.84. U.S. markets were closed for the July 4 holiday.

“Some investors have been worried that the tapering would have a harmful effect, but if the real economy continues to show decent improvement, those concerns will be mitigated,” Tanweer Akram, senior economist with ING U.S. Investment Management in Atlanta, said by telephone, referring to the Fed’s stimulus efforts. His firm oversees $180 billion.

A report on July 5 showed payrolls rose by 195,000 workers for a second month, exceeding the 165,000 gain projected by economists in a Bloomberg survey and indicating the U.S. economy is poised for faster growth. The jobless rate stayed at 7.6 percent. Other data during the week showed jobless claims decreased while manufacturing improved.

Fed Stimulus

Monetary stimulus from the Fed has helped send the S&P 500 up 141 percent from its bear-market low in 2009, including a 14 percent rally so far this year. The index has slipped 2.2 percent from its last record on May 21 after Fed Chairman Ben S. Bernanke said the central bank could begin to reduce bond purchases should the employment market show sustainable growth.

Speculation over reduced central bank stimulus sent Treasury securities plummeting. The yield on the 10-year (USGG10YR) note climbed to 2.74 percent, the highest level since August 2011.

“The employment number was 30,000 jobs higher than what the world was looking for,” Peter Tuz, who helps manage more than $500 million as president of Chase Investment Counsel Corp. in Charlottesville, Virginia, said by phone. “Data points like that help,” he said. “The Fed’s done a good job in telegraphing what they’re going to do. The world and the economy could easily live with the 10-year bond yield at 3 percent.”

European Rates

Global equities also rose as European Central Bank President Mario Draghi predicted that interest rates will remain low for an extended period of time, while the Bank of England signaled it will keep borrowing costs at a record low for longer than investors had estimated. U.S. stocks fell on July 2 as the price of crude oil rallied after political unrest in Egypt sparked concern of supply disruptions.

Investors will turn their attention to corporate earnings in the coming week. Alcoa Inc. (AA), the biggest U.S. aluminum producer, on July 8 is the first company in the Dow scheduled to report second-quarter results. Profits from S&P 500 companies probably grew 1.8 percent, according to analyst estimates compiled by Bloomberg. That’s down from a projected increase of 6.2 percent at the beginning of the quarter.

The Chicago Board Options Exchange Volatility Index, or VIX, tumbled 12 percent for the week to 14.89. The equity volatility gauge, which moves in the opposite direction as the S&P 500 about 80 percent of the time, reached a six-month high in June and has fallen 27 percent since.

Autos, Retailers

Nine out of 10 industries in the S&P 500 rose for the week, with utility companies the only group to fall. Consumer-discretionary, technology and financial shares led gains, adding more than 1.9 percent.

Auto companies rose 4.3 percent as a group for the biggest gain out of 24 industries. Ford (F) surged 8 percent to $16.70, the highest level since January 2011. The automaker’s sales of cars and light trucks climbed 13 percent last month, beating the average estimate of a 12 percent increase.

General Motors Co. jumped 4.1 percent to $34.67 after the company’s 6.5 percent sales growth in June exceeded analysts’ projected gain of 2.1 percent.

Retailers advanced 2.7 percent. Sales at U.S. stores open at least one year rose 2.9 percent for the week ended June 29 as concern over increased inventory and markdowns eased, Johnson Redbook Research said.

Abercrombie & Fitch climbed 8.8 percent to $49.24. The teen retailer may see acceleration in margin expansion amid sales stabilization and cost reductions, Piper Jaffray Cos. wrote in a note, reiterating the stock as a top pick.

Basel III

All 24 companies in the the KBW Bank Index (BKX) rose at least 1.1 percent, as the measure climbed to its highest level since October 2008. SunTrust Banks Inc. advanced 8.7 percent to $34.31 and KeyCorp added 8.7 percent to $12. Analysts from Wells Fargo & Co. to Goldman Sachs Group Inc. said regional banks will benefit more than the largest banks from requirements by Basel III, the Basel Committee on Banking Supervision’s latest set of global standards.

Apple climbed 5.3 percent to $417.42. The world’s most valuable technology company is nearing a deal with Time Warner Cable Inc. to give subscribers of the cable television service access to channels via Apple TV, people with knowledge of the negotiations said. Raymond James analyst Tavis McCourt lifted the iPhone maker to a strong buy from outperform.

Tesla Motors Inc. added 12 percent to a record $120.09. The electric-car maker said it received hundreds of orders for its new Model S sedan in Hong Kong, enough to double the number of electric cars in the city. Jefferies Group LLC analyst Elaine Kwei lifted her price target on Tesla to $130 a share from $70.

Homebuilders Tumble

An S&P index of homebuilders fell 3.8 percent amid concern rising interest rates may curtail a housing recovery. KB Home (KBH) plunged 8 percent to $18.07.

Newmont Mining Corp. lost 7.3 percent to $27.78 as the price of gold slipped. Jefferies analyst Peter Ward lowered his rating on the stock to underperform, an equivalent to sell, from hold. Barrick Gold Corp. tumbled 13 percent to $13.76, the lowest level since 2000.

Mead Johnson Nutrition Co. plunged 13 percent, the biggest one-week decline since its initial public offering in February 2009, to $69.33 after China said regulators are investigating whether the prices of infant formula are too high.

To contact the reporters on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net; Katie Brennan in New York at kbrennan23@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net

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