U.S. Stocks Rise on Summers’ Exit, Syria Weapons DealNick Taborek, Wes Goodman and Adam Haigh
U.S. stocks rose, sending the Standard & Poor’s 500 Index to a five-week high and within 1 percent of a record, after Lawrence Summers withdrew his bid to be Federal Reserve chairman and tensions over dealing with Syria’s chemical weapons eased.
Boeing Co. rallied 3.9 percent to pace gains among industrial shares after Sterne Agee & Leach Inc. raised its price target. PulteGroup Inc. and D.R. Horton Inc. climbed at least 3.6 percent as housing stocks surged. Bristol-Myers Squibb Co. added 3.6 percent after JPMorgan Chase & Co. advised investors to buy the shares. Packaging Corp. of America jumped 11 percent after it agreed to buy Boise Inc. for about $1.27 billion. Apple Inc. fell 3.2 percent, continuing its slide since introducing the latest iPhone on Sept. 10.
The Standard & Poor’s 500 Index added 0.6 percent to 1,697.60 at 4 p.m. in New York, after earlier rising as much as 1 percent. The Dow Jones Industrial Average advanced 118.72 points, or 0.8 percent, to 15,494.78. About 5.7 billion shares changed hands on U.S. exchanges, 4.5 percent below the three-month average.
“I don’t think the market knew what kind of a Fed chairman Summers would be, and having him out of the running makes things look a lot more certain,” Colleen Supran, a principal of Bingham, Osborn & Scarborough in San Francisco, which manages $2.7 billion, said in a phone interview. “This tapering announcement that’s expected for Wednesday seems to be accepted by the markets. It’s probably going to be modest.”
Summers withdrew from contention before a two-day Fed meeting starting tomorrow. The former Treasury secretary would tighten policy more than Janet Yellen, who was his main rival to replace Chairman Ben S. Bernanke, according to a Bloomberg Global Poll of investors, analysts and traders last week.
Summers, 58, was one of three names that Obama had mentioned as possible replacements for Bernanke, whose term as Fed chairman ends on Jan. 31. Yellen, 67, the current Fed vice chairman, was also on Obama’s candidate list along with Donald Kohn, 70, a former Fed vice chairman, the president said earlier.
The S&P 500 rose 2 percent last week and today came within five points of its record high of 1,709.67 on Aug. 2. The benchmark gauge has rallied nine of 10 sessions this month, rising 4 percent to rebound from the worst monthly loss since May 2012, as reports showed China’s economy strengthened and the U.S. looked less likely to attack Syria.
The U.S. and Russia struck a deal on Sept. 14 demanding the destruction of Syria’s chemical weapons by mid-2014, with the U.S. saying it maintained a military option to ensure compliance.
Economists expect the U.S. central bank to reduce its $85 billion in monthly bond-buying by $10 billion this week, according to the median forecast in a Bloomberg News survey. The stimulus has helped the S&P 500 rally more than 150 percent from its March 2009 low.
Investors have been closely watching data to determine the timing and pace of any Fed stimulus reductions. A report today showed manufacturing in the New York region expanded less than forecast in September even as orders and shipments picked up. Separate data showed industrial production rose in August by the most in six months, indicating U.S. manufacturing will contribute more to the expansion.
Growing speculation about stimulus cuts has whipsawed stocks since May, when Fed officials first indicated reductions could start this year. The S&P 500 tumbled 5.8 percent from a record on May 21 through June 24. It rebounded 8.7 percent to close at its latest all-time high before slumping as much as 4.6 percent from that level.
“Summers had been seen as a person who can add volatility to the market given his bias toward more aggressive tightening, should he take up the Fed chairmanship,” Gary Dugan, the Singapore-based chief investment officer for Asia and the Middle East at Coutts & Co., said in a telephone interview. “This brings Janet Yellen to the forefront and the consensus is she’ll build a follow-through of Bernanke’s policies.”
Options traders have scaled back hedges against potential stock losses. The CBOE Volatility Index, the gauge of S&P 500 options prices known as the VIX, last week capped an 11 percent five-day drop, its biggest weekly slide since the week ended July 5. The gauge advanced 1.6 percent to 14.38 today.
The S&P 500 pared its gain around 1:40 p.m. as U.S. options exchanges halted trading for about an hour after reporting a malfunction with the industry data feed for disseminating prices. CBOE Holdings Inc., NYSE Euronext, Nasdaq OMX Group Inc. and Bats Global Markets Inc. reported shutdowns that were later resolved.
The interruption occurred days after securities regulators told market operators to find ways to make their systems more reliable. In a meeting with the heads of major U.S. securities markets last week, Mary Jo White, the chairman of the Securities and Exchange Commission, urged the executives to shore up price feeds in serving investors and traders.
Nine of 10 main groups in the S&P 500 advanced, with industrial companies, materials producers and financial firms rising at least 1.1 percent. About 19 percent of companies in the S&P 500 reached a new 52-week high today, the most since Aug. 1, according to data compiled by Bloomberg.
Boeing surged 3.9 percent to a record $115.67 for the biggest rise in the Dow. Sterne Agee analyst Peter Arment said the aerospace company is a “must-own stock” among large industrials and raised his price target to $164 from $120.
Delta Air Lines Inc. jumped 3 percent to $23.15 to pace gains in an gauge of air carriers. The Bloomberg U.S. Airlines Index rose 1.9 percent to the highest level since Aug. 2. The measure has rallied 55 percent this year.
Financial shares rallied 1.1 percent as all but three of an S&P index’s 81 members advanced. Wells Fargo & Co., the biggest U.S. home lender, climbed 1.7 percent to $42.89. Travelers Cos. gained 1.2 percent to $84.57.
Bristol-Myers, the maker of the Eliquis blood thinner and the Bydureon diabetes treatment, rose 3.6 percent to $45.14. JPMorgan raised its recommendation for the stock to overweight, a rating similar to buy, from neutral.
A team of JPMorgan analysts led by Chris Schott forecast the drugs company’s earnings may grow by an average 13 percent through 2020, driven by its forthcoming products. The analysts increased their price estimate for the shares to $52 from their earlier prediction of $50.
Packaging Corp. jumped 11 percent to $60.43. The fourth-largest U.S. producer of corrugated shipping boxes agreed to pay $12.55 for each Boise share, 26 percent more than Boise’s Sept. 13 closing prices. The deal includes $714 million in debt. Boise rallied 26 percent to $12.56, an all-time high.
Whole Foods Market Inc. added 1.1 percent to a record $57.71. The shares have advanced 12 straight days, the longest winning streak in the stock’s history. Royal Caribbean Cruises Ltd. also extended its record rally to 12 days, rising 1.5 percent to $39.79. The world’s second-largest cruise-line operator, under pressure from its largest shareholder, doubled its quarterly dividend on Sept. 11.
An S&P gauge of homebuilders surged 2.1 percent. D.R. Horton jumped 3.7 percent to $19.84 and PulteGroup gained 3.8 percent to $17.14. Yields on 10-year Treasury notes retreated two basis points, or 0.02 percentage point, to 2.86 percent.
Apple Inc. fell 3.2 percent to $450.12 for the biggest drop in the S&P 500. The stock has fallen 11 percent since the day before the world’s most valuable technology company introduced a new, lower-cost version of the iPhone.
Technology stocks were the only group to retreat in the S&P 500, sliding 0.3 percent. Hewlett-Packard Co. dropped 1.5 percent to $21.74 for the Dow’s steepest slide.
Citigroup Inc. expects the S&P 500 to rally 12 percent to 1,900 by the end of next year as valuations rise and investors pour money into mutual funds.
Tobias Levkovich, the firm’s chief U.S. equity strategist, said he favors shares of larger companies over smaller ones because foreigners will boost U.S. holdings and may prefer to buy well-known stocks. Computer makers, health-care providers and consumer discretionary stocks will outperform, he said.
“There is plenty of dry powder to push share prices higher as confidence returns,” Levkovich said in a Sept. 13 note. “A shift toward growth stocks seems appropriate along with large-cap names especially if foreign money moves into U.S. markets.”
The dollar depreciated 1.2 percent in the past week through yesterday, the biggest drop among 10 developed-nation currencies tracked by Bloomberg Correlation Weighted Indexes. Treasuries lost 0.4 percent in September to the end of last week, heading for a fifth monthly decline, according to the Bloomberg U.S. Treasury Bond Index.
“Markets were priced for the likelihood of a Summers nomination, primarily for the notion that he might raise interest rates sooner than perhaps other candidates, including Janet Yellen,” Tony Crescenzi, a portfolio manager and strategist at Newport Beach, California-based Pacific Investment Management Co., which runs the world’s biggest bond fund, said in an e-mail. “This news should result in outperformance of shorter maturities” before the Federal Reserve Open Market Committee meeting starting tomorrow.
Summers had been the president’s favorite for the job. Twenty U.S. senators, 19 Democrats and one independent, signed a letter of support for Yellen in July, who would be the first female Fed chairman if nominated and confirmed.
Former Treasury Secretary Timothy Geithner, sometimes mentioned as another alternative, doesn’t want the Fed post and has made that clear since leaving the Treasury early this year, according to a person familiar with his thinking, who asked for anonymity to discuss private conversations.
“Summers withdrawing helps to crystalize the outlook and it does put the market on a more dovish stance going forward,” Tai Hui, the Hong Kong-based chief Asia market strategist at JPMorgan Asset Management, which oversees about $1.5 trillion, said by telephone. “Obviously we have other names, but the reality seems a bit more support for Yellen after Summers’ exit from the race.”
A poll of investors, analysts and traders who are Bloomberg subscribers, conducted Sept. 10, showed Yellen was viewed more favorably. Sixty percent of respondents had a positive view of Yellen, compared with 37 percent for Summers.