S&P 500 Tops Record, Nears 2,000 Amid Confidence in Fed

Aug. 21 (Bloomberg) -- Bloomberg's Michael Regan discusses what investors are looking for in Fed Chair Janet Yellen's Jackson Hole speech and the outlook for U.S. stocks with Scarlet Fu on "In The Loop." (Source: Bloomberg)

Optimism that the Federal Reserve is committed to supporting a strengthening economy sent the Standard & Poor’s 500 Index to an all-time high and within eight points of the 2,000 milestone.

The S&P 500 jumped 0.3 percent to a record 1,992.37 at 4 p.m. in New York, rising for a fourth day, the longest streak in two months. The Dow Jones Industrial Average gained 60.36 points, or 0.4 percent, to 17,039.49. The measure is 0.6 percent below its record after closing above 17,000 for the first time since July 24. Financial shares rallied as Bank of America Corp. added 4.1 percent. Hewlett-Packard Co. surged 5.4 percent to lead technology companies.

“The market is really in a sweet spot for U.S. stocks, fundamentals continue to be very good,” Jeff Kravetz, the Phoenix-based regional investment director at US Bank’s Private Client Reserve, said via phone.

The gains are coming after the S&P 500 started August with the worst weekly decline in more than two years. Almost $900 billion has been restored to American equity values since then, bolstered by easing tensions in Ukraine and speculation that central banks will keep interest rates low even as the economy shows signs of recovery. The S&P 500 has rebounded 4.3 percent from a two-month low on Aug. 7.

About 4.8 billion shares changed hands on U.S. exchanges today, the second-slowest full session this year after May 23, the day before the Memorial Day holiday weekend. Volume has not topped 5 billion shares in each of the past three days.

Minutes to the Fed’s July meeting released yesterday reinforced speculation that the central bank will remain supportive, even as some policy makers indicated a willingness to raise rates sooner than anticipated. While a report today showed fewer Americans than forecast applied for unemployment benefits last week, Fed Chair Janet Yellen has highlighted uneven progress in the labor market in making the case for further accommodation.

Jackson Hole

Yellen will speak tomorrow at the Fed Bank of Kansas City’s economic symposium that starts today in Jackson Hole, Wyoming. European Central Bank President Mario Draghi will also speak.

“The thesis for the second half is better growth,” Krishna Memani, the New York-based chief investment officer at OppenheimerFunds, said by phone. “The expectation for tomorrow is that Yellen is not going to say anything dramatic that’s going to be different from what she’s said before.”

Among other data today, purchases of previously owned U.S. homes unexpectedly rose in July to a 10-month high as low borrowing costs and an increase in inventory drew buyers. The Conference Board’s index of U.S. leading indicators, a gauge of the outlook for the next three to six months, increased 0.9 percent in July, topping forecasts.

Good News

The Markit Economics preliminary August index of U.S. manufacturing jumped to 58, the highest since April 2010, from 55.8 the month before as production, orders and employment picked up. Readings exceeding 50 in the purchasing managers’ gauge indicate expansion.

“We’ve had a paradigm where good economic news is bad news, but it’s clear this week that good news is just good news,” Quincy Krosby, a market strategist at Newark, New Jersey-based Prudential Financial Inc., which manages more than $1 trillion, said via phone. “The package of data today was strong and the market is responding accordingly.”

The S&P 500 has almost tripled since its March 2009 low, helped by three rounds of Fed stimulus, coupled with better-than-projected corporate earnings. The S&P 500 has not had a decline of 10 percent in almost three years. It trades at 17.8 times the reported earnings of its companies, near the highest level since 2010.

Beach Ball

The market’s latest rebound was the sixth in two years where equities needed less than two weeks to recover after a drop of 2 percent or more, according to data compiled by Sundial Capital Research Inc. The V-shaped pattern of losses followed by gains is recurring more often than any time in almost eight decades, Sundial data show.

“It’s like trying to push a beach ball underwater and having it pop right back up,” John Manley, who helps oversee about $233 billion as chief equity strategist for Wells Fargo Funds Management in New York, said in a phone interview. “That’s what’s been happening to equity markets as the Federal Reserve has been accommodative.”

Investors are betting that a soft touch on monetary policy will continue to suppress stock volatility, pouring a record stretch of cash into an exchange-traded note that rallies as calm returns to equities. The Chicago Board Options Exchange Volatility Index, the gauge known as the VIX (VIX), has lost 31 percent this month.

Among 486 companies in the S&P that have reported second-quarter earnings, more than 75 percent beat analysts’ estimates. Gap Inc. and Salesforce.com Inc. are among eight S&P 500 companies reporting results today.

Banks Rally

Financial stocks advanced 1.1 percent, the most of 10 primary groups in the S&P 500. (SPX) Bank of America gained 4.1 percent, its largest increase since May 2013, to $16.16. The company will pay $245 million to settle U.S. Securities and Exchange Commission allegations that it failed to disclose rising mortgage losses and the risks of bonds tied to home loans.

EBay Inc. jumped 4.7 percent to $55.89, the most since January 2013, after The Information reported the company may spin off its PayPal payment unit as soon as next year.

Hormel Foods Corp. gained 4.3 percent to a record $49.92 after reporting earnings and revenue that beat analysts’ estimates.

Hewlett-Packard advanced the most in the S&P 500, rising 5.4 percent to $37, the highest since July 2011. The company posted its first sales growth in 12 quarters, fueled by improving personal-computer sales.

Sears Slumps

Sears Holdings Corp., the retailer controlled by billionaire hedge-fund manager Edward Lampert, fell 7.2 percent to $33.38 after posting a wider second-quarter loss as sales decreased for the 30th straight quarter.

Dollar Tree Inc. fell 1.3 percent to $54.28 as the discount chain cut the top end of its full-year earnings forecast amid costs related to its bid for Family Dollar Stores Inc. The deal came closer to fruition today after the takeover target rejected a $9 billion offer from Dollar General Corp., citing antitrust hurdles.

Family Dollar lost 0.5 percent to $79.41 and Dollar General slipped 0.2 percent to $63.61.

To contact the reporters on this story: Oliver Renick in New York at orenick2@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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