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Dow Hits Record as Fed Trims Stimulus as Economy Improves

Specialist Brian Egan, second from right, works with traders on the floor of the New York Stock Exchange on April 30, 2014. Photograph: AP Photo Close

Specialist Brian Egan, second from right, works with traders on the floor of the New... Read More

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Specialist Brian Egan, second from right, works with traders on the floor of the New York Stock Exchange on April 30, 2014. Photograph: AP Photo

U.S. stocks rose, sending the Dow (INDU) Jones Industrial Average to a record, as the Federal Reserve said it would continue to trim the pace of bond purchases as the economy gains momentum.

Facebook Inc. jumped 2.8 percent as Internet stocks recovered from earlier losses. Pepco Holdings Inc. climbed 17 percent after Exelon Corp. agreed to buy it. Twitter Inc. dropped 8.6 percent after saying user growth slowed. EBay Inc. (EBAY) fell 5 percent after the biggest online marketplace forecast sales that trailed some analysts’ estimates.

The Standard & Poor’s 500 Index increased 0.3 percent to 1,883.95 at 4 p.m. in New York, ending April with a 0.6 percent gain, its third straight monthly advance. The Dow climbed 45.47 points, or 0.3 percent, to 16,580.84, topping the previous closing record reached Dec. 31. The Nasdaq Composite Index added 0.3 percent, after an earlier drop of 0.8 percent. About 6.9 billion shares changed hands on U.S. exchanges, in line with the three-month average.

“The Fed seems to be putting aside the weakness in the first quarter that the market reacted to this morning,” Walter Todd, who oversees about $975 million as chief investment officer at Greenwood Capital Associates LLC, said in a phone interview. “The statement seems business as usual, and perhaps if you’d seen the Fed react more dovish to a weaker first quarter, that would’ve been more negative.”

Dow Record

The Dow’s previous record was 16,576.66, reached on the last day of 2013. The 30-stock gauge fell 7.3 percent from New Year’s through Feb. 3 amid concerns turmoil in emerging markets such as Turkey and Argentina would slow global growth. Since then it has rebounded 7.9 percent, led by an advance of 17 percent in Johnson & Johnson and gains of 14 percent each in Caterpillar Inc., Exxon Mobil Corp. and International Business Machines Corp.

The S&P 500 (SPX) is within 0.4 percent of a record. Its 8.2 percent recovery from a low of 1,741.89 on Feb. 3 has been led by a 14 percent rally in energy stocks and increases of 11 percent each in industries least tied to economic growth: utilities and home-product makers. The gauge’s best-performing stock since the 2014 bottom is Nabors Industries Ltd., a drilling contractor, which is up more than 50 percent.

Stocks climbed today after the Fed said that the economy is gaining momentum as consumers spend more, and said it would continue to trim the pace of bond purchases.

“Growth in economic activity has picked up recently, after having slowed sharply,” the Federal Open Market Committee said in a statement following a meeting in Washington. “Household spending appears to be rising more quickly.”

Winding Down

The committee pared monthly asset buying to $45 billion, its fourth straight $10 billion cut, and said further reductions in “measured steps” are likely.

Fed Chair Janet Yellen is winding down record stimulus as the world’s largest economy shows signs of rebounding from a first-quarter standstill. At the same time, the Fed repeated that it’s likely to keep the benchmark interest rate near zero for a “considerable time” after bond purchases end.

“This announcement is really no news is good news. No surprises here,” Kristina Hooper, a U.S. investment strategist at Allianz Global Investors in New York, said in a phone interview. The firm oversees $475 billion. “It’s positive because this announcement is more of the same in terms of underscoring that Fed is going to remain very accommodative.”

GDP Growth

Data today showed the U.S. economy barely grew in the first quarter as harsh winter weather chilled investment and exports dropped. Gross domestic product grew at a 0.1 percent annualized rate from January through March, compared with a 2.6 percent gain in the prior quarter. The median forecast of 83 economists surveyed by Bloomberg called for a 1.2 percent increase.

The pullback in growth came as snow blanketed much of the eastern half of the country, keeping shoppers from stores, preventing builders from breaking ground and raising costs for companies including United Parcel Service Inc. Another report today showing a surge in regional manufacturing this month adds to data on retail sales, production and employment that signal a rebound is under way as temperatures warm.

Companies in the U.S. boosted payrolls by 220,000 in April, figures from the ADP Research Institute in Roseland, New Jersey, showed today. The median forecast of 45 economists surveyed by Bloomberg called for an advance of 210,000.

Jobs Data

The ADP numbers come before data from the Labor Department on May 2. The government’s report may show employers added 215,000 workers in April, the most since November, according to economists’ projections.

Seventy-five percent of the 314 S&P 500 members that have reported earnings this season have posted profit that exceeded analysts’ estimates, data compiled by Bloomberg show. About 52 percent beat sales projections, according to the data.

Profits for members of the index climbed 3.4 percent in the first quarter, according to analyst estimates compiled by Bloomberg. They had predicted an increase of 0.7 percent as recently as April 17. Revenue probably rose 2.8 percent in the quarter, the projections show.

Investors added $3.1 billion to U.S. equity exchange-traded funds yesterday, the biggest single-day inflow since April 8, data compiled by Bloomberg show. Health-care stocks absorbed the most money among industry ETFs, taking in $177 million and paring its five-day net outflow to $399 million.

The Chicago Board Options Exchange Volatility Index, a gauge of options prices on the S&P 500, dropped 2.2 percent to 13.41. The measure fell 3.4 percent for the month.

Internet Stocks

Nine out of 10 major industries in the S&P 500 advanced today, with raw-material and industrial shares climbing more than 0.6 percent for the biggest gains. Energy shares had the only decline.

The Dow Jones Internet Composite Index gained 0.3 for its second straight day of gains, after recovering from an earlier drop of 1.7 percent. Netflix Inc. climbed 0.7 percent to $322.04.

Facebook Inc. rose 2.8 percent to $59.78. Mark Zuckerberg, chief executive officer of the world’s biggest social-networking service, said today at a conference that Facebook is offering improved tools and a more streamlined experience for logins, including the option to sign in anonymously.

“The technology sector is more of a stock-by-stock market today, as opposed to taking a clear direction,” Richard Sichel, chief investment officer at Philadelphia Trust Co., which oversees $2 billion, said in a phone interview.

Twitter Sinks

Twitter tumbled 8.6 percent to $38.97. The microblogging site reached 255 million members in the first quarter, sending year-over-year growth to 25 percent from 30 percent in the previous period.

EBay dropped 5 percent to $51.83 after forecasting second-quarter revenue of $4.33 billion to $4.43 billion. That compared with the average analyst projection of $4.4 billion, according to data compiled by Bloomberg. EBay also posted a first-quarter net loss after taking a $3 billion tax charge to let it repatriate foreign earnings.

Express Scripts

Express Scripts Holding Co. fell 6.2 percent to $66.58 after cutting its 2014 forecast. The pharmacy benefit manager reported first-quarter earnings excluding one-time items of 99 cents a share, missing the $1.01 average analyst projection. Cold weather and fewer Obamacare enrollees hurt earnings, the company said.

Separately, Express Scripts reported it received subpoenas from three different agencies regarding investigations into its contracts and relationships with drug companies including Pfizer Inc., AstraZeneca Plc and Biogen Idec Inc.

Pepco rallied 17 percent to $26.76. Exelon, the largest U.S. nuclear operator, agreed to buy Pepco in an all-cash deal for $6.8 billion. The deal offers Pepco holders $27.25 a share, a 25 percent premium over the closing price on April 25, according to a statement.

Hyatt Hotels Corp. gained 4.2 percent to $56.28. The company posted first-quarter adjusted earnings of 13 cents a share, beating the average analyst estimate of 11 cents. Hyatt also plans to open 40 hotels this year, the company said in a statement.

WellPoint Inc. rose 5.6 percent to $100.68. The second-largest U.S. health insurer raised its annual forecast after Obamacare enrollments boosted quarterly results.

To contact the reporters on this story: Joseph Ciolli in New York at jciolli@bloomberg.net; Lu Wang in New York at lwang8@bloomberg.net

To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net Jeff Sutherland, Jeremy Herron

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