U.S. Stocks Rise for Week as Economy Trumps Fed Concern

U.S. stocks rose for the week, giving the Standard & Poor’s 500 Index the longest winning streak since February, as signs of a stronger economy overshadowed concern the Federal Reserve will scale back stimulus.

Twitter Inc. (TWTR) rallied 60 percent since its initial public offering on Nov. 7. Gap Inc. jumped 13 percent after reporting preliminary profit higher than analyst estimates. U.S. Steel Corp. advanced 7 percent as Goldman Sachs Group Inc. said demand for the metal is recovering. Whole Foods Market Inc. (WFM) slumped 7.5 percent after cutting its 2014 profit forecast. Tesla Motors Inc. lost 15 percent after sales missed some estimates and a vehicle fire raised safety concerns.

The S&P 500 increased 0.5 percent to 1,770.61 over the five days, extending the benchmark index’s rally to a fifth straight week, the longest advance since Feb. 15. The Dow Jones Industrial Average added 146.23 points, or 0.9 percent, to close the week at a record 15,761.78.

“On a near-term basis tapering is a concern for stocks, but on a longer-term basis it’s actually a positive because it reflects the underlying strength of the U.S. economy,” Phil Orlando, New York-based chief equity strategist at Federated Investors, said by phone. His firm manages about $380 billion in assets. “The equity market appears to be correctly focused on the fact that underlying economic strength is starting to accelerate, which means that corporate earnings could pick up next year versus this year.”

Equities fluctuated this week as investors weighed evidence the U.S. economic recovery is accelerating against the possibility the Fed may reduce stimulus in coming months.

Economic Strength

Stocks rose Nov. 6 after Fed officials said in two separate papers the central bank should maintain a loose monetary policy to support economic growth. The S&P 500 fell 1.3 percent the following day, its biggest decline since August, as data showed gross domestic product rose faster in the third quarter than economists forecast. The index erased that loss on the final day of the week as a Labor Department report showed payrolls increased more than forecast in October.

Central bank stimulus has helped the S&P 500 surge more than 160 percent from its bear-market low in 2009. The benchmark gauge is up 24 percent this year, poised for the best annual gain since 2003. The rally pushed the S&P 500’s valuation to 16 times estimated earnings, the highest multiple in almost four years, data compiled by Bloomberg show.

The Fed said last month it needs to see more evidence of sustained economic improvement before slowing its $85 billion of monthly asset purchases. Economists in a Bloomberg survey project that tapering will begin in March, based on the median estimate.

‘Getting Closer’

“We’re getting closer to that point where the markets are not going to be completely dependent upon Fed stimulus,” Erik Davidson, the San Francisco-based deputy chief investment officer for Wells Fargo Private Bank, which oversees $170 billion, said by phone. “You have these all-time highs, combine that with a correction-less rally -- people are a little bit on edge.”

The Chicago Board Options Exchange Volatility Index (VIX), the gauge of S&P 500 options prices known as the VIX, slid 2.9 percent to 12.90, after two weeks of gains. The measure is down 28 percent this year.

Seven out of the 10 main industries in the S&P 500 advanced for the week. Raw-materials producers, financial and energy companies climbed more than 1 percent to pace gains. Phone companies lost 2.1 percent for the steepest decline.

Earnings Season

Whole Foods and Ralph Lauren Corp. were among 80 companies that announced results for the week. Of the 449 companies that have reported this season, 75 percent exceeded analysts’ predictions for profit, while 54 percent beat sales estimates, data compiled by Bloomberg showed. Profits for members of the gauge probably increased 4.7 percent in the third quarter as sales climbed 3.2 percent, according to analysts’ estimates compiled by Bloomberg.

“The third quarter just knocked it out of the park,” Jerry Braakman, chief investment officer of First American Trust in Santa Ana, California, said by phone. “There’s no reason for us to believe that the fourth-quarter earnings aren’t going to meet or exceed expectations as well.”

Twitter soared 60 percent to $41.65 over two days, surging 73 percent in its market debut and retreating 7.2 percent the following day. The short-messaging service, while unprofitable, is benefiting from investors’ thirst for companies that will grow quickly in expanding markets like mobile advertising. Twitter draws 70 percent of revenue from mobile advertising, compared with about half for Facebook Inc.

Facebook slipped 4.5 percent to $47.53 for the week.

Potential Changes

Microsoft Corp. gained 6.3 percent to $37.78. Rick Sherlund, a Nomura analyst, increased his share-price forecast to $45 from $40, citing potential changes under a new chief executive officer, including a disposal of Microsoft’s business in consumer products such as the Bing search engine and Xbox game console.

Gap rallied 13 percent to $41.43. The biggest U.S. specialty-apparel retailer anticipates quarterly profit that surpassed analysts’ estimates, helped by gains in sales.

U.S. Steel climbed 7 percent to $27.59 and AK Steel Holding Corp. increased 17 percent to $5.38. Both stocks were raised to buy from sell by Goldman Sachs analyst Sal Tharani. Demand for American steel is heading to a “sustainable recovery” over coming years, he wrote in a note, boosting the rating on the industry to neutral from cautious.

Organic Competition

Whole Foods, the largest natural-foods grocer in the U.S., lost 7.5 percent to $58.55. Sales at stores open at least a year rose 5.9 percent in the fiscal fourth quarter, the slowest growth in 15 quarters. The company is facing increased competition from expanding organic and natural-food sellers including Fairway Group Holdings Corp. and Sprouts Farmers Market Inc.

Ralph Lauren (RL) rose 2.7 percent to $173.42. The company said it now expects full-year revenue to grow more than 5 percent, up from an earlier projection of an increase of at least 4 percent. Ralph Lauren raised its quarterly dividend to 45 cents a share from 40 cents.

Tesla, the electric-car maker led by Elon Musk, plunged 15 percent to $137.95 after reporting vehicle sales that missed some analysts’ estimates. One of the company’s Model S sedans also caught fire after an accident in Tennessee, the third such incident in five weeks, prompting a safety advocate to call on U.S. regulators to examine the luxury electric car.

Abercrombie & Fitch Co. (ANF) fell 6.9 percent to $34.37. The retailer’s third-quarter sales trailed analysts’ estimates as teens restrained spending on clothing.

To contact the reporter on this story: Nick Taborek in New York at ntaborek@bloomberg.net

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

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