U.S. stocks rose, with the Standard & Poor’s 500 Index rebounding from last week’s decline, as investors weighed economic data with the prospects for stimulus cuts ahead of this week’s Federal Reserve policy meeting.
Nine of 10 industries in the S&P 500 advanced, with energy and technology stocks leading gains. Netflix Inc. jumped 7.1 percent after agreeing to a multiyear deal with DreamWorks Animation SKG Inc. to obtain original programming. Micron Technology Inc. advanced 3.8 percent after Citigroup Inc. lifted its price target on the largest U.S. maker of memory chips.
The S&P 500 rose 0.8 percent to 1,639.04 at 4 p.m. in New York, after earlier gaining as much as 1.2 percent. The Dow Jones Industrial Average added 109.67 points, or 0.7 percent, to 15,179.85. About 5.7 billion shares traded hands on U.S. exchanges today, or 9.4 percent below the three-month average.
“Although things are improving, we have a long way to go,” James Dunigan, who helps oversee $112 billion as chief investment officer in Philadelphia for PNC Wealth Management, said by telephone. “We’re ahead of ourselves with regard to the Fed acting anytime soon in reducing the support that it’s providing for the economy.”
Investors have been watching economic reports for clues to whether the economy is strong enough to allow the Fed to scale back its $85 billion in monthly bond buying. Data today showed manufacturers in the New York region felt more optimistic in June, indicating the area’s factories are looking beyond the current slowdown in growth. Separate data showed confidence among U.S. homebuilders surged last month to the highest level in seven years.
Group of Eight
Equities trimmed their advance after a British official said the Group of Eight leaders see downside risks to the global economy abating even as growth prospects remain weak. U.S. stocks fell last week as the International Monetary Fund cut its outlook for U.S. growth in 2014 to 2.7 percent from 3 percent.
Today’s paring accelerated after the Financial Times reported that Fed Chairman Ben Bernanke is likely to signal the central bank is close to tapering when he gives a press conference on June 19 following a two-day policy meeting.
The S&P 500 has fallen 1.8 percent since May 21, the day before Bernanke suggested the Fed could start to taper if the economy improved in a “real and sustainable way.” Stimulus from the central bank and corporate earnings that beat forecasts have propelled the bull market in U.S. stocks into a fifth year and driven the benchmark index up 142 percent from a 12-year low in 2009.
“The Fed and the Chairman have gone out of their way to say, ‘If we taper, we’re doing it for positive reasons’, which the market should view as a positive,” Mark Freeman, who oversees about $15 billion as chief investment officer at Westwood Holdings Group Inc. in Dallas, said by telephone. “If it happens, it’s for the right reasons and for reasons that are typically very supportive for the market. The problem from a market standpoint is that the market wants a specific date, but the Fed can’t give them a date because nobody knows.”
The Fed has held the target for its benchmark rate near zero since December 2008, and policy makers have promised to keep it around there as long as unemployment remains above 6.5 percent and the outlook for inflation doesn’t exceed 2.5 percent. The S&P 500 rallied an average 16 percent over two years the last four times the central bank started raising interest rates, according to data compiled by Bloomberg.
Concerns over economic growth and the pace of stimulus have led to widening swings in U.S. shares. The Chicago Board Options Exchange Volatility Index, or VIX, slid 2 percent to 16.80 today after earlier falling as much as 4.8 percent. The gauge climbed to an almost four-month high last week, jumping 13 percent in the five trading days to bring gains from a six-year low in March to 49 percent through today.
Energy companies rose the most out of 10 S&P 500 groups, gaining 1.3 percent. Technology shares had the second-biggest advance, increasing 1.1 percent. Cisco Systems Inc. jumped 2.5 percent to $24.70 to lead gains in the Dow. Phone stocks were the only group to decline, falling 0.6 percent.
Homebuilders rallied following today’s confidence report. The S&P Supercomposite Homebuilding Index jumped 2 percent as all 11 members gained. Toll Brothers Inc. rallied 2.4 percent to $33.66, and KB Home increased 1.7 percent to $22.02.
Netflix, the biggest gainer in the S&P 500 this year, rallied 7.1 percent to $229.23. The dominant subscription video-streaming service agreed to a deal with DreamWorks to obtain original programming to lure subscribers. It is the largest contract for original content in the history of Netflix, the Los Gatos, California-based company said.
Micron advanced 3.8 percent to $13.24, the highest since July 2007. Citigroup lifted its price target on the largest U.S. maker of memory chips to $19. While shares are up 101 percent year-to-date through June 14, analyst Glen Yeung cited the acquisition of Japan’s Elpida Memory Inc., which is expected to close in the first half of the year, and continued increase in prices for memory chips.
Boeing Co. added 1.2 percent to $103.03, the highest level October 2007. The planemaker received on the first morning of the 50th Paris Air Show in France an order from General Electric Co.’s GE Capital Aviation Services leasing division for 10 of the largest 787 Dreamliners valued at about $2.9 billion.
Lockheed Martin Corp. increased 0.5 percent to $108.27. S&P upgraded its credit outlook on the maker of F-35 fighters to stable from negative after the close of markets on June 14, citing the company’s ability to generate strong free cash flow even as U.S. arms spending declines.
Lockheed expects to boost output of F-35s to more than 100 planes annually by about 2020 from 36 aircraft this year, according to Steve O’Bryan, Lockheed Martin’s vice president for the F-35 program. Higher building rates will allow for cost reductions of about 30 percent, he said in an interview at the Paris Air Show.