U.S. Stocks Rise as Investors Weigh Jobs, Economic Data
U.S. stocks rose, with benchmark indexes staging the longest rally since July, as investors weighed data on the labor market and American services industry before tomorrow’s monthly jobs report.
Louisiana-Pacific Corp. surged 11 percent after agreeing to buy Ainsworth Lumber Co. Costco Wholesale Corp. gained 2.8 percent as August sales beat estimates. Groupon (GRPN) Inc. climbed 3.6 percent after Morgan Stanley upgraded the stock. Telephone and utility shares, the industries with the highest dividend yields, fell as Treasury rates surged to a two-year high.
The Standard & Poor’s 500 Index (SPX) rose 0.1 percent to 1,655.08 at 4 p.m. in New York. The Dow Jones Industrial Average added 6.61 points, or less than 0.1 percent, to 14,937.48. About 5.3 billion shares changes hands on U.S. exchanges, 12 percent below the three-month average.
“Most people are looking at Friday’s jobs number as the determining factor whether or not the Fed will start tapering in September,” Steven Bulko, the New York-based chief investment officer of Lombard Odier’s $1.2 billion long/short 1798 Fundamental Strategies Fund, said by telephone. “We are definitely starting to see incremental gains in the U.S. economy, which will provide positive data that hopefully mitigates some of the negative, short-term headwinds.”
The S&P 500 climbed for a second day yesterday after the Federal Reserve said the economy maintained a modest to moderate pace of growth and automakers rallied amid the highest car and light-truck sales since May 2007.
Data today indicated fewer Americans than forecast filed applications for unemployment benefits last week while a separate report from the ADP Research Institute showed companies boosted payrolls in August by 176,000 workers.
The Labor Department’s monthly jobs report, which is due tomorrow, will probably show that U.S. payrolls rose by 180,000 in August, while the jobless rate remained at 7.4 percent, a Bloomberg poll of economists showed.
The Institute for Supply Management’s non-manufacturing index rose to 58.6 in August from 56 the prior month, a report from the Tempe, Arizona-based group showed today. The median forecast in a Bloomberg survey called for a drop to 55. A reading greater than 50 indicates expansion in the industries that make up almost 90 percent of the economy.
Another report showed orders placed with U.S. factories fell less than forecast in July as rising fuel prices propelled the biggest gain in non-durable goods in a year.
Economic data “are reasonably robust,” Tim Holland, partner and portfolio manager at Tamro Capital Partners at Alexandria, Virginia, said in a phone interview. His firm oversees $2.2 billion. “The $64,000 question the past three months is ‘can the world sustain higher rates?’ In my mind, higher rates that go hand in hand with better economic growth are not anything to be scared of.”
Central bank policy makers have been weighing data to determine whether the economy is strong enough for it to scale back the pace of bond buying. The Fed will probably decide to cut its $85 billion in monthly bond purchases this month, according to 65 percent of economists surveyed by Bloomberg on Aug. 9-13. The Federal Open Market Committee holds a two-day gathering on Sept. 17-18.
Monetary stimulus from central banks including the Fed has helped drive a global equity rally, with the S&P 500 and the MSCI All-Country World Index more than doubling from their lows in 2009. European Central Bank President Mario Draghi said today that the monetary stance for the euro area will remain accommodative for as long as necessary. In the U.K., Bank of England officials also left rates unchanged at 0.5 percent.
Fed Bank of Dallas President Richard Fisher, who has opposed additional stimulus and votes on policy next year, said today that the central bank must ensure its bond buying program doesn’t disrupt financial markets.
The S&P 500 has slipped 3.2 percent from a record 1,709.67 on Aug. 2 amid concern over Fed tapering and as the U.S. moved closer to a military strike against Syria. The Senate Foreign Relations Committee voted yesterday to authorize President Barack Obama to conduct a limited military operation against the regime of Bashar al-Assad. The full Senate will begin to discuss the president’s plans when it reconvenes on Sept. 9.
The Chicago Board Options Exchange Volatility Index (VIX), or VIX, fell 0.7 percent to 15.77 today. The equity volatility gauge is down 12 percent this year.
Seven out of 10 S&P 500 industry groups gained as industrial and commodity shares climbed more than 0.3 percent.
Louisiana-Pacific surged 11 percent to $16.95 after agreeing to buy Ainsworth Lumber for about C$906 million ($863 million) in cash and stock. The Canadian company makes a substitute for plywood called oriented strand board.
Costco gained 2.8 percent to $114.62. The largest U.S. warehouse-club chain said August sales at U.S. stores open at least one year rose 5 percent, excluding fuel. Analysts estimated a 4.2 percent increase.
Groupon rallied 3.6 percent to $10.66. The daily deals site has turnaround potential in other markets after introducing deal banks in North America and showing strength in the mobile market, Morgan Stanley analysts including Scott Devitt wrote in a note. They raised the stock to overweight, an equivalent of buy, from equalweight.
Fastenal Co. jumped 6 percent to $48.60 for the biggest gain in the S&P 500. The construction supplies retailer said August daily sales rose 7.2 percent after a 2.9 percent gain in July on increased business from manufacturing customers.
Telephone and utility companies retreated at least 0.4 percent for the worst performance in the S&P 500 as rising bond yields reduced demand for equity income. The two groups offer a dividend yield of more than 4.2 percent, the most among 10 industries. That compared with the yield of 2.99 percent in 10-year Treasury bonds.
AT&T Inc., the largest U.S. phone company, declined 1.2 percent to $33.34.
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