U.S. Stocks Extend Records on Fed Bets Amid Factory DataAubrey Pringle
U.S. stocks rose to records, with benchmark gauges capping a sixth week of gains, as investors assessed data on factory output amid growing speculation the Federal Reserve will maintain the pace of its monthly stimulus.
Exxon Mobil Corp. rallied 2.2 percent to a record after Warren Buffett’s Berkshire Hathaway Inc. disclosed a stake. FedEx Corp. climbed 1.6 percent as billionaire investors George Soros and John Paulson took positions. Fannie Mae and Freddie Mac increased at least 6.2 percent as Bill Ackman’s hedge fund bought shares in the government-backed mortgage insurers. Western Union Co. dropped 4.3 percent after the company said its chief financial officer is leaving.
The Standard & Poor’s 500 Index rose 0.4 percent to 1,798.18 at 4 p.m. in New York. The gauge gained 1.6 percent in the past five days, capping its longest streak of weekly gains since February. The Dow Jones Industrial Average added 85.48 points, or 0.5 percent, to 15,961.70, a third straight record. About 6.1 billion shares changed hands on U.S. exchanges today, in line with the three-month average.
Janet Yellen’s remarks yesterday told investors that “interest rates are going to remain low for a while, which is a positive environment for equities,” John Fox, director of research at Fenimore Asset Management in Cobleskill, New York, said by phone. Fenimore oversees about $1.8 billion. “The combination of earnings growth and expanded PE due to investors feeling better about things just continues to move the market higher.”
The S&P 500 and the Dow rallied as Yellen, nominated to succeed Ben S. Bernanke as chairman of the Federal Reserve, said yesterday the central bank should take care not to withdraw stimulus too early from an economy that is operating well below potential.
Data today showed manufacturing in the New York region unexpectedly contracted in November. A separate report showed total industrial production in the U.S. fell 0.1 percent in October as output at mines and utilities declined. Factory output rose more than forecast. Wholesale inventories widened by 0.4 percent in September, the Census Bureau said.
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. The Fed support has helped propel the S&P 500 higher by 166 percent from its March 2009 low.
Global equities rose today on expectations of continued Fed stimulus and as China’s ruling party announced changes to economic policy. The government vowed to allow more private investment in the state sector, loosen its one-child policy and better protect farmers’ rights to land, according to the Communist Party policy decision published today by the official Xinhua News Agency today.
The document, covering 60 measures, follows a communique issued Nov. 12 after a four-day party conclave in Beijing that omitted detailed policies for the world’s second-largest economy.
The S&P 500 has rallied 26 percent so far in 2013, poised for its best annual gain in a decade. The gauge is trading at 16.2 times projected earnings, topping the five-year average of 14 times earnings, according to data compiled by Bloomberg.
JPMorgan Chase & Co. expects the index to extend its rally this year after the gauge surpassed the firm’s year-end target. Chief U.S. equity strategist Thomas Lee raised his target for the gauge to 1,825 from 1,775, implying an increase of 1.9 percent from yesterday’s close.
‘Constructive’ on Equities
“The U.S. is in a secular bull market and remaining constructive on equities is warranted,” Lee said in a note to clients today. Pent-up demand in sectors from housing to cars will boost corporate earnings while the Fed continues its “supportive” monetary policy, he said. Technology and financial stocks account for about half of the increase in his S&P 500 target.
Of the 463 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 4.9 percent in the third quarter and will gain 5.8 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 1.5 percent to 12.19, the lowest since Aug. 5. The gauge lost 5.5 percent this week to extend its drop for the year to 32 percent.
All 10 main S&P 500 groups advanced at least 0.2 percent. Energy and materials producers rallied at least 0.6 percent to pace gains, as the U.S. factory data and Chinese policy changes boosted demand prospects for commodities.
Exxon, the world’s biggest oil company by market value, advanced 2.2 percent to a record $95.27, for the Dow’s biggest rise. Berkshire Hathaway reported a stake valued at about $3.7 billion on Sept. 30.
Financial stocks increased 0.5 percent as a group. American Express Co. added 1.1 percent to $82.80 and Visa Inc. rose 0.9 percent to $202.
FedEx climbed 1.6 percent to $138.65. Soros Fund Management LLC owned a $173 million stake and Paulson & Co. held $73.8 million in the shares of the operator of the world’s largest cargo airline at the end of last quarter.
The funds join Daniel Loeb’s Third Point LLC in disclosing new stakes in the period. FedEx shares have rallied four straight days and trade at a record.
Fannie Mae added 7.8 percent to $3.30 and Freddie Mac gained 6.2 percent to $3.08, with both stocks closing at the highest level since May. Pershing Square Capital Management LP bought stakes of nearly 10 percent in each of the companies and said it may seek talks with management, shareholders and the government.
The government seized Fannie Mae and Freddie Mac after they were pushed to the brink of bankruptcy by investments in bad loans. The two took $187.5 billion in taxpayer aid before reporting record profit this year as the housing market rebounded.
Investor Bruce Berkowitz, is seeking to restructure the companies. Fairholme Capital Management LLC, the mutual-fund firm he runs, this week proposed buying two businesses that insure mortgage-backed securities from Fannie Mae and Freddie Mac.
General Electric Co. rose 0.8 percent to $27.20. The company said it will sell as much 20 percent of its North American consumer lending business in an initial public offering in 2014, as Chief Executive Officer Jeffrey Immelt shrinks reliance on financial profits.
Agilent Technologies Inc. rallied 8.7 percent to $54.93 for the biggest gain in the S&P 500 and the stock’s highest level in 12 years. The maker of testing equipment for electronics and medical devices reported quarterly earnings and revenues that surpassed expectations.
Iron Mountain Inc. climbed 5.8 percent to $30.15 and Equinix Inc. gained 3.3 percent to $167.61. The two technology companies said the Internal Revenue Service is proceeding with evaluating their eligibility to convert to real estate investment trusts.
Vanda Pharmaceuticals Inc. surged 12 percent to $14.59 after the company won the backing of U.S. advisers for an experimental drug to regulate the circadian rhythms of blind people to help them sleep. Jefferies analyst Oren Livnat reiterated a buy rating and raised the price target to $20 from $13, citing “minimal approval risk.”
Zulily Inc., which runs a shopping website targeted at moms, jumped 71 percent to $37.70 in its first day of trading after raising $253 million in its U.S. initial public offering. The e-commerce company and some stockholders sold 11.5 million shares for $22 apiece yesterday.
Western Union sank 4.3 percent to $16.70, the lowest since June. The money services company said Chief Financial Officer Scott Scheirman will step down on Dec. 31. Raj Agrawal will serve as interim CFO upon Scheirman’s departure.
Kellogg Co., the maker of Rice Krispies cereal, declined 1.1 percent to $62.61. The stock was cut to underweight, or sell, from equalweight, or hold, at Barclays Plc.