S&P 500 Rises to Record on Fed Bets Amid Budget Talks

U.S. stocks rose, sending the Standard & Poor’s 500 Index to a fresh record, as investors weighed the timing of any cuts to Federal Reserve monetary support amid budget negotiations in Washington.

Sysco Corp. jumped 9.7 percent after the food distributor agreed to buy closely held US Foods in a deal valued at about $3.5 billion. Gilead Sciences Inc. advanced 1.6 percent after getting approval for a hepatitis C pill that may generate more than $6 billion in annual sales. McDonald’s Corp. dropped 1.1 percent after November sales missed analysts’ estimates.

The S&P 500 climbed 0.2 percent to 1,808.37 at 4 p.m. in New York, surpassing its previous record of 1,807.23 set on Nov. 27. The Dow Jones Industrial Average rose 5.33 points, or less than 0.1 percent, to 16,025.53. About 5.6 billion shares changed hands on U.S. exchanges, 8.9 percent below the three-month average.

“People are getting more comfortable with the idea of tapering and the concept that the reason for the taper is that the economy is getting stronger,” Walter Todd, who oversees about $950 million as chief investment officer of Greenwood Capital Associates LLC in Greenwood, South Carolina, said by phone. “At the end of the day that’s a good thing not a bad thing. For the next week it’s just going to be speculation around the timing.”

The S&P 500 gained 1.1 percent on Dec. 6, halting a five-day slump that erased 1.2 percent from the gauge, as jobs growth in November beat estimates and the unemployment rate fell to a five-year low.

Fed Comments

The index fell less than 0.1 percent last week, snapping an eight-week rally that was the longest in almost a decade, as improving economic data spurred concern that the Fed will reduce its stimulus sooner than expected.

Fed policy makers will probably begin reducing $85 billion in monthly bond buying at a Dec. 17-18 meeting, according to 34 percent of economists surveyed on Dec. 6 by Bloomberg, an increase from 17 percent in a November survey. In November, 53 percent predicted a tapering in March, compared with 40 percent in the poll of 35 economists.

Fed Bank of St. Louis President James Bullard, who votes on policy this year, said in a speech today the odds of tapering bond purchases have risen along with gains in the labor market, and any reduction should be modest to account for low inflation.

“A small taper might recognize labor-market improvement while still providing the committee the opportunity to carefully monitor inflation during the first half of 2014,” Bullard, a supporter of record stimulus, said in St. Louis.

Budget Talks

His Dallas counterpart, Richard Fisher, said in a Chicago speech that the Fed needs to begin tapering “at the earliest opportunity,” as the current pace of stimulus “comes at a cost that far exceeds its purported benefits.”

The central bank will also be watching the outcome of U.S. budget talks. Fed officials cited the drag from fiscal policy in their Oct. 30 statement and Jeffrey Lacker, president of the Richmond Fed, said in a speech today that U.S. budget uncertainty is also weighing on business hiring and investment decisions.

Congressional negotiators are nearing a deal to trim automatic spending cuts and break a three-year stretch of failed fiscal talks in Washington. Aides to Republican Representative Paul Ryan and Democratic Senator Patty Murray, chief negotiators on a special panel, say they are optimistic for a compromise by a Dec. 13 deadline.

Budget Talks

The 29-member budget conference panel was set up by the legislation that ended the 16-day government shutdown in October, with the goal of getting both chambers of Congress back to regular order in devising a budget plan for Congress.

“Our fundamental view is that any tapering-related pullback will be a temporary selloff,” said Dan Morris, who helps oversee about $520 billion as global investment strategist at TIAA-CREF Asset Management in New York. “Valuations and earnings are good. We don’t see a bubble in U.S. stocks.”

The S&P 500 has gained 27 percent in 2013 as the Fed refrained from trimming its $85 billion a month of bond purchases. The gauge is trading at 16.2 times the projected earnings of its constituents, compared with a 10-year average of almost 14.9.

Household wealth in the U.S. increased from July through September as improvement in the home and equity markets boosted American balance sheets. Net worth for households and non-profit groups rose by $1.92 trillion in the third quarter, or 2.6 percent from the previous three months, to $77.3 trillion, the Federal Reserve said today from Washington.

Volatility Gauge

The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options known as the VIX, fell 2.2 percent to 13.49.

Eight of 10 main S&P 500 industries advanced today, with materials companies climbing 0.5 percent to pace the gains.

Financial firms rose 0.4 percent as a group, a day before five U.S. agencies will finish the Volcker rule, which aims to reduce the chances that banks will put federally insured depositors’ money at risk by largely banning proprietary trading.

JPMorgan Chase & Co. climbed 0.8 percent to $56.51 and Goldman Sachs Group Inc. added 0.3 percent to $167.67.

Food Acquisition

Sysco gained 9.7 percent to $37.62. The company will pay $3 billion in common stock and $500 million in cash. Sysco, which will also assume about $4.7 billion US Foods’ debt, said it has secured fully committed bridge financing for the transaction.

Gilead climbed 1.6 percent to $75.19. The Food and Drug Administration said it gave approval for sofosbuvir, which Gilead will call Sovaldi, for use with other drugs depending on the type of illness.

Given Imaging Ltd. surged 27 percent to $30.06, the highest since October 2007. Covidien Plc plans to acquire the medical technology company’s outstanding stock for $30 a share, or about $860 million.

Ruby Tuesday Inc. rallied 5.3 percent to $7.18. The restaurant chain hired Goldman Sachs to explore a sale, Debtwire reported on Dec. 6.

McDonald’s Sales

McDonald’s fell 1.1 percent to $95.72 for the biggest drop in the Dow. The world’s largest restaurant chain said sales at stores open at least 13 months rose 0.5 percent last month, trailing analysts’ estimates as rivals lured diners amid a choppy U.S. economic recovery. Analysts projected a 0.6 percent increase, the average of 14 estimates from Consensus Metrix.

Abercrombie & Fitch Co. lost 2.2 percent to $34.10, bringing its decline this year to 29 percent. Chief Executive Officer Mike Jeffries got a new contract with the teen-apparel retailer amid weakening earnings and a call by shareholder Engaged Capital LLC for him to be replaced.

Dean Foods Co. lost 1.9 percent to $18.08. Morgan Stanley reduced its rating on the food-and-beverage producer to equal weight, similar to hold, from overweight, or buy. The shares had posted a year-to-date gain of 20 percent through Dec. 6, even after falling as much as 19 percent from a four-year high in August.

Edwards Lifesciences Corp. slid 5.4 percent to $62.73. The maker of artificial heart valves said 2014 earnings per share will be in a “wide range” around $3, citing “uncertain timing” of new competition in the U.S. and Europe. Analysts were predicting profit next year of $3.49 a share.