U.S. Stocks Rally for Fourth Week Amid Economic Optimism
U.S. stocks rallied for a fourth straight week, sending benchmark indexes to record highs, as data showing confidence improved among consumers and small businesses fueled optimism in the world’s largest economy.
All 10 groups in the Standard & Poor’s 500 Index advanced during the week as financial, industrial and technology stocks led gains. JPMorgan Chase & Co. and Citigroup Inc. rose more than 5.5 percent as hedge-fund manager David Tepper called U.S. banks “a good sector.” Cisco Systems Inc. (CSCO) surged 15 percent for the biggest increase in the Dow Jones Industrial Average after reporting profit that topped estimates.
The S&P 500 jumped 2.1 percent to 1,667.47 over the five days. The benchmark equity gauge has advanced every week since April 19 and is up 17 percent this year. The Dow added 235.91 points, or 1.6 percent, to 15,354.40.
“The near-term evidence is that if we have a slowdown, it’s not going to be as severe as in the last two years,” Cameron Hinds, the Lincoln, Nebraska-based regional chief investment officer for Wells Fargo Private Bank, which has about $170 billion under management, said by telephone. “We had consumer confidence come out and it was very strong. It’s a reflection of what we’ve seen in the market this week and the past few weeks.”
Americans’ confidence in the economy climbed in May to the highest level in almost six years, according to an index of consumer sentiment. Separate data showed confidence among small businesses climbed in April to a six-month high. Retail sales and an index of U.S. leading indicators also rose, overshadowing reports showing weakness in manufacturing.
Stocks also rose after Tepper, co-founder and owner of Appaloosa Management LP, said in an interview on CNBC that he is still bullish and the economy is getting better. Tepper, who led Institutional Investor’s ranking of the top earners in hedge funds last year with $2.2 billion, said in January in a Bloomberg Television interview that the U.S. “is on the verge of an explosion of greatness.”
The U.S. bull market has entered its fifth year. The S&P 500 (SPX) has surged 146 percent from a 12-year low in 2009, driven by better-than-estimated corporate earnings and three rounds of bond purchases from the Federal Reserve.
U.S. equities retreated on May 16 after Fed Bank of San Francisco President John Williams said the central bank may begin slowing the pace of its $85 billion in monthly bond-buying amid signs the economy is gradually gaining strength. Fed Chairman Ben Bernanke has said he would continue unprecedented stimulus until the jobless rate falls to 6.5 percent or inflation rises above 2.5 percent.
“Everybody’s talking about how the Fed is going to message the tapering off of quantitative easing,” Wells Fargo’s Hinds said. “When you get the various Fed presidents talking, the market seems to lean on that, but I think you have to pay attention to what the official news is and what Bernanke is saying.”
The S&P 500 has rallied 6.3 percent during the second quarter. The period has historically meant losses for equities. The S&P 500 slumped as much as 9.9 percent from April through June last year. It erased 19 percent from April through October in 2011 and 16 percent from April to July in 2010.
The benchmark gauge has dropped only four times in the past 21 days and is up 4.4 percent in May, heading for the seventh straight month of gains.
The Chicago Board Options Exchange Volatility Index, or VIX (VIX), slumped 1.1 percent to 12.45 for the week. The benchmark gauge for options, which moves in the opposite direction to the S&P 500 about 80 percent of the time, has fallen 31 percent this year.
About 90 percent of S&P 500 stocks traded above their average prices from the past 50 days, according to data compiled by Bloomberg. That’s near the highest level in three months, while below the two-year high of 93 percent in January.
Financial companies increased the most among 10 industries in the S&P 500 during the week, rising 3.7 percent. JPMorgan Chase (JPM) added 6.8 percent to $52.30 for the second-biggest increase in the Dow. All 24 lenders in the KBW Bank Index (BKX) rallied this week, as the gauge climbed 4.4 percent.
Tepper said his firm still owns Citigroup and other U.S. banks. The third-largest lender in the country rose 5.5 percent to $51.45.
Industrial stocks advanced 2.2 percent as a group, while technology companies jumped 2 percent.
Cisco surged 15 percent, the largest one-week gain since 2002, to $24.24. The biggest maker of networking equipment reported earnings that exceeded analysts’ estimates as businesses spent more to meet surging demand for data delivery via the Web.
Education companies climbed as investors who had expected declines in Apollo Group Inc. (APOL) and ITT Educational Services Inc. were forced to buy back shares as the market rallied.
Apollo, the largest U.S. for-profit college chain, jumped 14 percent to $21.35. The stock’s short interest reached 15 percent of its shares available for trading in April, the highest level since at least 2006, according to data compiled by Bloomberg and Markit, a London-based research firm. The ratio has since fallen to 13.6 percent as of May 15.
ITT Educational, whose short interest climbed to 30.5 percent from a low of 18.5 percent in January, soared 24 percent to $25.75.
Automaker shares jumped 5.7 percent as a group, the most among 24 S&P 500 industries. European Union car sales rose in April for the first time since September 2011, the Brussels-based European Automobile Manufacturers’ Association said. Goodyear Tire & Rubber Co. rallied 15 percent to $14.74. Ford Motor Co. increased 6.9 percent to $15.08.
Tesla Motors Inc. surged 19 percent to $91.50. The electric-car maker led by billionaire Elon Musk increased the size of its equity and debt offerings by 30 percent to repay its U.S. loan and build up cash reserves. Tesla said it intends to sell as many as 3.9 million shares for $92.24 apiece. Musk, 41, is to purchase 1.08 million shares for about $100 million and convertible notes may raise as much as $648 million. The company on May 10 reported its first quarterly profit.
Macy’s Inc. (M) added 3.1 percent to $48.67. The second-largest U.S. department-store chain reported fiscal first-quarter profit that beat analysts’ estimates and increased its share buyback program by $1.5 billion.
Netflix Inc. increased 9.8 percent to $239. The dominant subscription video-streaming service said its revival of the cult TV show “Arrested Development” could help second-quarter results.
Apple Inc. (AAPL) slumped 4.4 percent to $433.26. Appaloosa’s Tepper said he cut his stake in the iPhone maker at the start of the year as the world’s most valuable technology company hasn’t been “evolutionary” or “revolutionary” recently. Birinyi Associates Inc. also trimmed its holdings in the company, while David Einhorn’s Greenlight Capital Inc. added to its Apple position, according to separate filings.
Wal-Mart Stores Inc. lost 1.3 percent to $77.87 after the world’s largest retailer forecast second-quarter profit that was less than analysts estimated. First-quarter sales at U.S. Wal-Mart stores open at least 12 months fell 1.4 percent, the first drop after six straight gains.
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