S&P 500 Extends Record as Yellen Signals Stimulus SupportAubrey Pringle
U.S. stocks rose, extending records for benchmark indexes, as comments from Janet Yellen signaled she will continue the Federal Reserve’s stimulus efforts.
PulteGroup Inc. jumped 4.9 percent as homebuilders surged. Office Depot Inc. gained 4.5 percent after Bank of America Corp. recommended investors buy the stock. Cisco tumbled 11 percent, leading a decline among technology shares, after its profit forecast missed projections. Kohl’s Corp. dropped 8.1 percent after the retailer cut its forecast.
The Standard & Poor’s 500 Index rose 0.5 percent to a record 1,790.62 at 4 p.m. in New York. The Dow Jones Industrial Average increased 54.59 points, or 0.4 percent, to 15,876.22, also a record. The Nasdaq Composite Index added 0.2 percent to the highest level since September 2000. About 6 billion shares changed hands on U.S. exchanges today, in line with the three-month average.
“Clearly Yellen’s speech is really what’s driving the markets,” Joseph Tanious, a New York-based global market strategist for J.P. Morgan Asset Management, which oversees about $1.5 trillion, said by phone. “Hearing her comments, it reaffirms everyone’s belief that Yellen is unlikely to pull the plug on QE, at least in the next couple months. Investors are feeling a bit more comfortable.”
Yellen, nominated to be the next chairman of the Federal Reserve, said the central bank should take care not to withdraw stimulus, known as quantitative easing, too early from an economy that is operating well below potential.
“It’s important not to remove support, especially when the recovery is fragile and the tools available to monetary policy, should the economy falter, are limited given that short-term interest rates are at zero,” she said in testimony to the Senate Banking Committee in Washington today.
Central bank policy makers will probably pare the $85 billion monthly pace of bond buying to $70 billion at their March 18-19 meeting, according to the median of 32 estimates in a Bloomberg survey of economists on Nov. 8. The group next meets Dec. 17-18.
Fed support has helped propel the S&P 500 to a 165 percent gain from its March 2009 low. The gauge has rallied 26 percent in 2013, on course for its best year in a decade, and is trading at 16.2 times projected earnings, more than the five-year average of 14 times profit, data compiled by Bloomberg show.
Yellen added that she sees no evidence of an asset-price bubble in the stock market. “Stock prices have risen pretty robustly, but if you look at traditional measures,” such as price-earnings ratios, “you would not see stock prices in territory that suggests bubble-like conditions,” she said.
Abby Joseph Cohen, a senior investment strategist at Goldman Sachs Group Inc., said value remains in the U.S. stock market, pointing to price-earnings ratios that are lower now than the last time stocks were near these levels.
“Companies right now are increasingly enthusiastic about the dynamism in the economy,” Cohen said in a Bloomberg Radio interview with Tom Keene yesterday. “There’s value in the market right now. The U.S. economy will likely grow faster next year.”
Data today showed jobless claims in the week ended Nov. 9 declined 2,000 to 339,000 from a revised 341,000 the week before that was higher than initially reported. The median forecast of 51 economists surveyed by Bloomberg called for a drop to 330,000.
Fed Bank of Philadelphia President Charles Plosser, an opponent of Fed bond purchases, said the central bank should focus on price stability as its primary objective, and not worry as much about “fluctuations” in employment.
Of the 462 S&P 500 companies that have announced earnings so far, 75 percent have topped analysts’ income forecasts, data compiled by Bloomberg showed. Profits for the gauge increased 4.7 percent in the third quarter and will gain 6.2 percent in the final three months of the year, estimates compiled by Bloomberg show.
The Chicago Board Options Exchange Volatility Index, which measures future volatility signaled by S&P 500 options, fell 1.2 percent to 12.37. The gauge has tumbled 31 percent this year.
Nine of 10 main S&P 500 groups advanced. Utilities stocks increased 0.9 percent for the best performance among the industries.
The S&P Supercomposite Homebuilding Index gained 3 percent as all 11 members advanced. PulteGroup jumped 4.9 percent to $17.86 and Lennar Corp. climbed 2.7 percent to $34.22. D.R. Horton Inc. added 2.8 percent to $19.59.
Office Depot rose 4.5 percent to $5.62. Bank of America raised its rating on the stock to buy from underperform, similar to a sell recommendation, citing potential cost savings following its merger with OfficeMax Inc. and the appointment of Roland Smith as chief executive officer. The shares are up 12 percent for the week.
Tyco International Ltd. rose 2.4 percent to $37.60, its highest price since 2002. The fire detector and security company reported quarterly revenue that beat estimates.
Western Digital Corp. climbed 4.7 percent to a record $75.85 after the company late yesterday said it would pay a quarterly dividend of 30 cents a share. Western Digital had paid 25 cents a share for the previous five quarters.
Eli Lilly & Co., the biggest U.S. maker of insulin products, rose 1 percent to $51.03. The company said it will pour another $700 million into manufacturing capacity, more than tripling its investment in the expanding market for diabetes treatments.
Cisco, the world’s largest maker of computer-networking equipment, tumbled 11 percent to $21.37 after giving quarterly profit and sales forecasts that missed analysts’ estimates.
Chief Executive Officer John Chambers has cut prices to bolster sales of switches and routers, seeking to fend off competition from Huawei Technologies Co., Juniper Networks Inc. and Hewlett-Packard Co. Sales in developing regions were less than anticipated, and there was a “lack of confidence among business leaders” because of the outlook for the economy, as well as the shutdown of the U.S. government in October, Chambers said on a conference call.
Technology shares had the only decline among S&P 500 groups, with Hewlett-Packard losing 5.4 percent to $25.07 and Citrix Systems Inc. falling 5.3 percent to $54.96. Xilinx Inc. and Jabil Circuit Inc. retreated at least 3.9 percent.
Kohl’s plunged 8.1 percent to $53.55 for its biggest decline in almost a year. The retailer reported third-quarter earnings that missed analyst estimates and trimmed its full-year outlook.