U.S. Stocks Rally on Economic Reports, Stimulus Bets
U.S. stocks rallied, giving the Standard & Poor’s 500 Index its biggest gain since January, on better-than-forecast economic data and speculation the Federal Reserve will signal plans to maintain record low interest rates.
Gannett Co., the publisher of USA Today, jumped 34 percent after agreeing to buy Belo Corp. for about $1.5 billion. Belo surged 28 percent. Safeway (SWY) Inc. soared 7.4 percent as the second-largest U.S. grocery chain agreed to sell its Canadian stores. DuPont (DD) Co. slid 0.7 percent after cutting its forecast.
The S&P 500 rose 1.5 percent to 1,636.36 at 4 p.m. in New York. The index had tumbled 1.9 percent over the previous three days. The Dow Jones Industrial Average added 180.85 points, or 1.2 percent, to 15,176.08. About 6.3 billion shares traded hands today, in line with the three-month average.
“It’s undeniable that the series of data are getting better,” Chris Bertelsen, chief investment officer at Global Financial Private Capital, a Sarasota-based private wealth firm with about $2 billion in assets under management, said in a phone interview. “The only issue for the market is we’re in a vacuum month. In other words, there are no earnings, there is nothing to latch onto other than an occasional number here and there and people are worried about the Fed tapering.”
Retail sales in the U.S. rose 0.6 percent last month, the biggest increase in three months, Commerce Department figures showed today. The median forecast of 83 economists surveyed by Bloomberg called for a 0.4 percent advance. Data from a separate report indicated fewer Americans than forecast filed applications for unemployment benefits last week.
Investors have been scrutinizing economic data to determine whether growth is strong enough to prompt the Federal Reserve to scale back stimulus measures. The S&P 500 has slipped 2 percent since May 21 as Fed Chairman Ben S. Bernanke said the central bank may scale back bond buying if the U.S. labor market “improves in a real and sustainable way.” Three years of earnings growth and stimulus from the Fed has helped push the gauge up 142 percent from its bear-market low in 2009.
U.S. equities extended gains today after the Wall Street Journal reported that the Fed may “push back” on market expectations of higher interest rates. Bernanke has repeatedly said a reduction in the Fed’s $85 billion in monthly bond purchases wouldn’t mean an end to record easing.
Equities fell earlier as the World Bank said in a report the global economy will expand 2.2 percent this year, less than a January forecast for 2.4 percent growth and slower than last year’s 2.3 percent. It lowered its projection for developing economies and said the euro area’s gross domestic product will fall 0.6 percent.
Stocks in Asia plunged, erasing the MSCI Asia Pacific Index’s 2013 advance and dragging Japan’s Nikkei 225 Stock Average (NKY) into a bear market. The Hang Seng China Enterprises Index of Hong Kong-listed mainland firms slid 2.7 percent, and the Nikkei 225 tumbled 6.4 percent.
“The economy around the globe is slowing down so U.S. investors are certainly watching the data and hopefully see signs that the U.S. is not joining their friends in Europe and emerging markets,” Wayne Wilbanks, chief investment officer at Wilbanks, Smith & Thomas Asset Management LLC in Norfolk, Virginia, which oversees $2.5 billion, said by phone. “As markets get higher and higher, they can’t decide, ‘is the game over?’ Everybody wants to take their profits in this market, but they don’t want to miss the last 100 points.”
The Chicago Board Options Exchange Volatility Index (VIX), or VIX, slipped 12 percent today to 16.41. The equity volatility gauge, which moves in the opposite direction as the S&P 500 (SPX) about 80 percent of the time, reached a six-year low in March and has since surged 45 percent.
Stock gains accelerated after the S&P 500 recovered from a brief dip below its average price in the past 50 days, a measure that’s watched by some analysts to gauge the market’s trend. The S&P 500 has closed above the threshold on all trading days so far this year, except for April 18.
All 10 industries in the S&P 500 gained. Financial and consumer-discretionary companies climbed the most, rising at least 1.8 percent. Investors bought shares of companies most tied to economic growth, sending the Morgan Stanley Cyclical Index up 3.1 percent, its biggest one-day gain since September. An S&P gauge of homebuilders also rose, surging 4.9 percent.
Gannett rallied 34 percent to $26.60 and Belo soared 28 percent to $13.77. Both stocks hit five-year highs. Gannett will pay $13.75 per Belo share in cash, plus the assumption of $715 million in debt, according to a statement. The acquisition will make Gannett the fourth largest owner of major network affiliates, the company said. It will almost double Gannett’s broadcast portfolio to 43 stations from 23.
Safeway jumped 7.4 percent to $25.82 after agreeing to sell its Canadian stores to Empire Co.’s Sobeys Inc. unit for about C$5.8 billion ($5.7 billion) in cash. Proceeds from the sale will be used to pay down $2 billion in debt and buy back stock, Safeway said.
PVH Corp. climbed 10 percent to $122.60. The owner of the Tommy Hilfiger and Calvin Klein brands said that excluding some items it earned $1.91 a share in the first quarter. That beat the average analyst estimate of $1.37 in a Bloomberg survey.
DuPont slipped 0.7 percent to $53.88. The largest U.S. chemical company by market value cut its first-half earnings forecast after cool, wet weather in North America and Europe affected revenue and costs at its agriculture and nutrition and health units.
Williams Cos. fell 1 percent to $33.70, after an explosion and fire at a chemical plant in Geismar, Louisiana. At least one person died and scores were injured, Governor Bobby Jindal said. The cause of the explosion isn’t known, Williams said.
Coty Inc. declined 0.8 percent to $17.36 on the first day of trading. The maker of perfumes endorsed by Beyonce and Heidi Klum raised about $1 billion on behalf of existing holders in an initial public offering yesterday.
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