U.S. Stocks Advance Amid Wide Swings Before Fed Policy Decision

U.S. Consumers Are Nowhere Near Their Comfort Zone
  • Rapid shifts in direction, sentiment have taken hold
  • Rebound in Apple shares helps guide technology higher

U.S. stocks closed higher, boosted by a rebound in Apple Inc., after swinging in a wide range amid light volume a week before the Federal Reserve makes a decision on interest rates.

Apple climbed 2.2 percent, wiping out yesterday’s slide to lead technology shares higher. Biotechnology companies boosted health-care, with Biogen Inc. and Gilead Sciences Inc. up more than 3 percent. Pfizer Inc. increased 2.1 percent. Wynn Resorts Ltd. fell 4.6 percent, down for the third time in four sessions. Krispy Kreme Doughnuts Inc. lost 12 percent after cutting its earnings forecast.

The Standard & Poor’s 500 Index gained 0.5 percent to 1,952.29 at 4 p.m. in New York, after climbing as much as 1.2 percent. The Dow Jones Industrial Average added 76.83 points, or 0.5 percent to 16,330.40. The Nasdaq Composite Index rose 0.8 percent. Trading in S&P 500 companies was 9.3 percent below the 30-day average.

“It’s a lack of volume or liquidity in the market because there is just not a lot going on,” said Dan McMahon, director of institutional equity trading at Raymond James and Associates. “People are on the sidelines and you get these violent moves and you don’t know what’s behind them, there’s really no rhyme or reason, so it’s very difficult to make a rational decision in this kind of environment.”

Investors assessed data today showing fewer Americans lined up last week to file for jobless benefits, highlighting the persistent strength of the labor market. Claims for unemployment insurance fell by 6,000 to 275,000 in the week ended Sept. 5, matching a Bloomberg survey of economists’ forecasts. A report yesterday showed job openings surged to a record in July, as hiring cooled, a sign employers are having a hard time finding qualified workers amid tightening labor market.

As investors anxiously await the Fed’s looming decision on whether to raise rates this month, policy makers at the Bank of England said today that market turmoil related to China’s slowdown hasn’t shaken their view that the time for a rate increase is approaching. Similar to recent comments from Fed officials, the BOE also stuck to its view that inflation will start to pick up around the turn of the year.

With the timing of the Federal Reserve’s first rate increase since 2006 taking center stage, traders remain confident the Fed will raise borrowing costs this year. They’re pricing in a 28 percent chance the central bank will increase rates next week, down from 48 percent before China’s devaluation, while odds of a move at the December gathering are 59 percent, according to data compiled by Bloomberg.

Fed Watch

“It’s very much about the Fed this week but there’s also the backdrop of what’s happening with emerging markets,” said Anwiti Bahuguna, senior portfolio manager at Columbia Threadneedle Investments. “It’s a very volatile time and markets are trying to gauge whether growth in China is worse than markets have priced in, and if the first rate hike in the U.S. will add to an emerging-market crisis and if that will affect U.S. growth again.”

Wide market swings and rapid shifts in investor sentiment have become more prevalent since China’s currency devaluation last month sparked concerns that an economic slowdown would spread. The Dow swung more than 444 points yesterday between its session high and low before closing down 239 points.

In 11 of the previous 14 days, the S&P 500 closed with a move exceeding 1.3 percent. That includes the biggest rally since 2011 as well as the deepest rout in four years. The benchmark has lost 8.3 percent since peaking in July, the last time the gauge closed within points of its May record.

“U.S. stocks have been all over the place after months of not really going anywhere,” said Steven Santos, a broker at Banco de Investimento Global SA in Lisbon. “It’s all about getting used to greater volatility and big daily swings now. You can’t really make a strong directional call on stocks before the Fed meeting next week. There’s too much uncertainty.”

Billionaire investor David Tepper said he’s not as bullish as he could be about stocks because of potential problems with earnings growth. In an interview on CNBC, the president of Appaloosa Management LP said that taking a little cash off the table is “not a bad idea.”

The Chicago Board Options Exchange Volatility Index fell 7.1 percent Thursday to 24.37. The measure of market turbulence known as the VIX is down 14 percent this month after a record 135 percent jump in August.

Biotechs Rebound

Nine of the S&P 500’s 10 main groups gained today, with tech and health-care companies rising the most. Energy shares recovered roughly a quarter of yesterday’s 1.9 percent selloff as oil rebounded. Valero Energy Corp. and Pioneer Natural Resources Co. rose more than 1.9 percent.

A handful of networking-equipment companies helped lift tech shares. Juniper Networks Inc., Cisco Systems Inc. and Motorola Solutions Inc. added at least 1.1 percent. Qualcomm Inc. rose 1.9 percent. Skyworks Solutions Inc. and Nvidia Corp. gained more than 1.5 percent to pace an increase in semiconductors. Facebook Inc. advanced 1.7 percent to a three-week high.

The Nasdaq Biotechnology Index added 1.9 percent after sliding 2.2 percent Wednesday. The gauge has swung at least 1.8 percent in seven of the last eight sessions. Celgene Corp. and Amgen Inc. climbed more than 1.3 percent.

Gilead gained 3.3 percent as it gears up to sell $10 billion of bonds, according to a person with knowledge of the sale. The debt offering is fueling speculation the company could be preparing for an acquisition, Jefferies LLC analyst Brian Abrahams wrote in note. Baxalta Inc. rose 2.3 percent, and earlier as much as 5.8 percent, with Abrahams mentioning it as a potential acquisition target.

Con-way Inc. soared 34 percent, the most ever, after XPO Logistics Inc. agreed to buy trucker in an all-cash deal valued at $3 billion. XPO lost 11 percent, the most in almost three years.

Lululemon Athletica Inc. fell 16 percent, the most in 20 months. The yogawear maker forecast third-quarter profit that missed analysts’ estimates, raising concerns that it’s relying too heavily on the holiday season to meet full-year projections.

Dollar Tree Inc. lost 2.8 percent, falling to its lowest close since November. The discount retailer was downgraded by Credit Suisse Securities USA LLC to underperform from neutral.

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