U.S. stocks advanced for a second straight week, sending the Standard & Poor’s 500 Index to the highest level since 2007, as the Federal Reserve’s plan to buy mortgage securities fueled demand for riskier assets.
Commodity, financial and industrial shares had the biggest gains during the week among 10 groups in the S&P 500. U.S. Steel Corp. and Caterpillar Inc. climbed at least 5.7 percent. Bank of America Corp. increased 8.5 percent as a German court cleared the way for Europe’s bailout fund. Apple Inc. rose 1.6 percent to a record after introducing a new version of the iPhone.
The S&P 500 added 1.9 percent to 1,465.77, extending its two-week rally to 4.2 percent. The index is 6.8 percent away from its all-time high set in October 2007. The Dow Jones Industrial Average gained 286.73, or 2.2 percent, to 13,593.37.
“We’ve had a good period where everything that could go right did go right,” said Russ Koesterich, the San Francisco-based global chief investment strategist for the IShares unit of BlackRock Inc. His firm oversees $3.56 trillion. “The rally was a function of the fact that policy makers delivered, and probably even a bit more than expected.”
Equities rallied as the Fed said on Sept. 13 that it will expand its holdings of long-term securities with open-ended purchases of $40 billion of mortgage debt a month in a third round of quantitative easing as it seeks to boost growth and reduce unemployment. Stocks also climbed after Germany’s top constitutional court rejected efforts to block a permanent euro-area rescue fund.
Bets on global central bank action and better-than-estimated corporate profits have taken the S&P 500 up 17 percent this year. Financial and technology shares, which comprise the biggest groups in the benchmark measure, surged at least 23 percent in 2012 to lead the gains among 10 groups.
Bank of America became the third Wall Street firm to forecast U.S. stocks will hit a record next year, joining the ranks of optimists from Laszlo Birinyi to Tobias Levkovich in saying the bull market will last. The S&P 500 will climb to 1,600 by the end of next year amid record profit growth, Savita Subramanian, Bank of America’s head of U.S. equity strategy, wrote in a note.
Citigroup Inc.’s Levkovich and Brian Belski at Bank of Montreal, the other strategists with forecasts for 2013, say the S&P 500 will rise above its high of 1,565.15 set on Oct. 9, 2007. Birinyi, president of Birinyi Associates Inc., predicts more gains as bearish investors give up and start buying stocks.
“Sentiment and fundamentals are supportive,” Subramanian said in the research report. “We are optimistic on equities for the longer term.”
Companies which are most dependent on the pace of economic growth led the gains in the S&P 500. The Morgan Stanley Cyclical Index jumped 4.3 percent. U.S. Steel, the country’s largest producer of the metal by volume, added 7 percent to $22.35. Caterpillar, the largest maker of construction and mining equipment, rose 5.8 percent to $93.17.
Commodity shares rallied the most during the week. The Standard & Poor’s GSCI spot gauge of 24 raw materials jumped 2.6 percent to 694.21, its seventh weekly advance. Alpha Natural Resources Inc., which extracts and processes metallurgical coal, surged 24 percent to $8.55 for the biggest gain in the S&P 500. Cliffs Natural Resources Inc. added 14 percent to $45.55.
The KBW Bank Index of 24 stocks climbed 4.8 percent, the most since March and its third straight weekly advance. Bank of America soared 8.5 percent to $9.55. JPMorgan Chase & Co., which plunged as much as 24 percent in the month after disclosing a multibillion-dollar trading loss, erased that decline. The shares added 5.8 percent to $41.57 for the week.
Morgan Stanley rose 6.8 percent to $18.24. It agreed to buy the rest of its brokerage joint venture from Citigroup Inc. at a price that values the entire unit at $13.5 billion -- or about 40 percent less than Citigroup’s estimate two months ago.
Apple jumped 1.6 percent to $691.28. The iPhone 5 boasts a bigger screen and has a chip that handles tasks more quickly than past versions. The company said orders for the device from its online store won’t be shipped for two weeks, fueling speculation that the new model has sold out.
Facebook Inc. added 16 percent to $22. Chief Executive Officer Mark Zuckerberg said at the TechCrunch Disrupt conference in San Francisco that the company should generate more revenue from mobile devices than from desktop computers.
The remarks helped allay concerns over Facebook’s ability to generate sales from users who increasingly socialize over handheld devices. The stock had plunged 49 percent since its May IPO amid signs of slowing growth and executives’ silence over plans to turn the tide.
Monster Beverage Corp. slumped 7.6 percent to $53.77. The largest U.S. energy drink maker by sales volume tumbled after two U.S. senators called for greater regulation of the beverages. The senators also asked for further study of how energy drinks affect children’s health and that the U.S. Food and Drug Administration regulate how much caffeine can be included in the beverages.
UnitedHealth Group Inc. will replace Kraft Foods Inc. in the Dow, the first change to the 116-year-old U.S. stock benchmark in three years, according to S&P Dow Jones Indices.
Kraft, the world’s second-largest food company, will be removed from the Dow average after deciding to spin off its North American grocery business. UnitedHealth, the biggest U.S. health insurer, was chosen because it represents the growing importance of health-care spending to the U.S. economy, according to the index provider. The change goes into effect at the opening of trading on Sept. 24, S&P Dow Jones Indices said.