S&P 500 Halts 4-Day Slide on Data Before Fed MeetingLu Wang and Whitney Kisling
U.S. stocks rose, after equities posted the biggest weekly drop since August, as investors watched data to gauge the outlook for stimulus before a two-day Federal Reserve meeting that starts tomorrow.
Exxon Mobil Corp. rallied 2 percent after Goldman Sachs Group Inc. raised the stock’s rating. General Motors Co. climbed 3.5 percent after saying it plans to spend $1.3 billion to upgrade five U.S factories and may consider paying a dividend next year. LSI Corp. jumped 39 percent after Avago Technologies Ltd. agreed to buy it in a deal valued at $6.6 billion. Twitter Inc. retreated 4.1 percent after Wells Fargo & Co. downgraded the stock.
The Standard & Poor’s 500 Index advanced 0.6 percent to 1,786.54 at 4 p.m. in New York, halting a four-day streak of declines. The Dow Jones Industrial Average rose 129.21 points, or 0.8 percent, to 15,884.57. About 6.01 billion shares changed hands on U.S. exchanges, in line with the three-month average.
“The big issue this week is the Fed’s meeting and what, if anything, they’re set to do,” Mark Luschini, chief investment strategist at Janney Montgomery Scott LLC, which oversees $60 billion, said from Philadelphia.“The market seems to be increasingly prepared for the prospects of it, and yet at the same time, has not bought into the notion that it’s likely to occur this week.”
The S&P 500 last week retreated 1.7 percent, the biggest decline since Aug. 30, amid concern that improving economic data will prompt the Fed to cut stimulus. Policy makers will probably start reducing their $85 billion of monthly bond purchases at the meeting that starts tomorrow, according to 34 percent of economists surveyed Dec. 6 by Bloomberg, up from 17 percent in a Nov. 8 poll.
The benchmark gauge has surged 25 percent this year, on course for the biggest annual gain since 2003, as the Fed maintained its stimulus and economic data exceeded expectations.
With 10 trading days left in 2013, the stock market enters a period where equities tend to outperform the rest of the year. The S&P 500 has gained 1.2 percent on average in the last 10 days of the calendar year, according to data since 1928 compiled by Bloomberg. That compares with a 0.3 percent return over any 10-day period.
Fed policy makers have scrutinized data and watched Washington’s budget negotiations to determine whether economic growth is robust enough to withstand the withdrawal of some monetary support. The House of Representatives last week passed a budget that limits automatic spending cuts and avoids another government shutdown. The Senate is expected to vote this week.
Data today showed the Federal Reserve Bank of New York’s general economic index rose less than forecast in December. A separate report indicated industrial production climbed in November by the most in a year, a sign manufacturing is bolstering the world’s biggest economy.
In Europe, manufacturing in the euro area reached a 31-month high in December, led by Germany, a survey from London-based Markit Economics showed.
“We have some short-term issues to deal with on tapering, but long term we’re constructive because tapering will really come at the result of economic data being self-sustaining,” Dan Veru, the chief investment officer who helps oversee $4.5 billion at Palisade Capital Management LLC, said in a phone interview from Fort Lee, New Jersey.“My personal view is that they’re not going to taper yet. It’d be an odd time of the year to announce a significant reversal of policy like this because markets tend to be more vulnerable this time of the year, less liquidity, less trading volume.”
The central bank has said it will hold its target interest interest rate near zero “at least as long as” unemployment exceeds 6.5 percent, so long as the outlook for inflation is no higher than 2.5 percent. Unemployment fell to a five-year low of 7 percent last month, while inflation is running below the Fed’s target of 2 percent.
Three rounds of Fed bond buying, also known as quantitative easing, have helped propel the S&P 500 to a rally of more than 160 percent from a 12-year low in 2009.
U.S. stocks will rise as much as 5 percent while bonds decline in 2014 as the Fed reduces economic stimulus, Douglas Ramsey, chief investment officer at Leuthold Group LLC, said in a Bloomberg radio interview today. Ramsey said he’s bullish on large technology and health-care companies and predicted that shares of small companies will underperform next year.
Companies buying their own stock make up more of the U.S. equity market than ever before, underpinning share values even as the Fed prepares to reduce stimulus.
Stock acquired under company repurchase programs represented 6.4 percent of daily trading in the Russell 3000 Index by value through Sept. 30, exceeding 2007’s level of 4.1 percent, according to data compiled by Bloomberg and Birinyi Associates Inc. The proportion of trading is higher even as chief executive officers spend $343 billion less on buybacks so far this year, reflecting a seven-year decline in equity volume.
Apple Inc. to Walt Disney Co. and International Business Machines Corp. took advantage of record-low interest rates to raise an unprecedented amount of debt financing and repurchased stock, helping boost per-share U.S. earnings for four years. With cash at a record, buying by companies is poised to continue in a bull market that is about to enter its sixth year.
The Chicago Board Options Exchange Volatility Index rose 1.7 percent today to 16.03. The gauge of S&P 500 options prices known as the VIX jumped 14 percent last week. The index closed above its one- and two-month futures in two of the final three days of that period, data compiled by Bloomberg show. The VIX’s premium over its own futures signaled demand is increasing for protection against stock losses.
Nine out of 10 main S&P 500 industries advanced today. Industrial, energy and technology stocks each rallied 1 percent as a group to lead gains. International Business Machines Corp. surged 2.9 percent to $177.85, halting five days off losses for the biggest increase in the Dow.
Exxon climbed 2 percent to $97.22. Goldman Sachs boosted its recommendation on the largest U.S. energy producer to buy from neutral, saying the stocks is “inexpensive” relative to its own history and the company may see organic volume growth next year for the first time since 2006.
GM climbed 3.5 percent to $41.44. The automaker, amid a push to refresh most of its U.S. lineup, already announced $1.5 billion in factory upgrade this year.
Chief Executive Officer Dan Akerson said the company is in a better position to consider paying a dividend given improving cash flow and fewer outstanding preferred shares.
American International Group Inc. rose 1.1 percent to $50.28 after agreeing to sell its plane-leasing unit, International Lease Finance Corp., to AerCap Holdings NV for $5 billion.
LSI surged 39 percent $10.96. LSI’s stockholders will receive $11.15 a share in cash from Avago, a supplier of components for wireless communications. The acquisition, which creates a semiconductor company with about $5 billion in annual revenue, will boost Avago’s free cash flow and earnings per share immediately. Avago rose 9.8 percent to $50.10.
Expedia Inc. added 5 percent to $65.88. Eric Sheridan, an analyst with UBS AG, increased the share-price estimate for the online travel agency to $74 from $70, saying the company may boost shareholder returns in coming years and investors haven’t fully appreciated the value in its Trivago and eLong assets.
Herbalife Ltd. jumped 9.4 percent to $73.83. The marketer of vitamins and weight-loss shakes said PricewaterhouseCoopers LP completed its its re-audit of the company’s financial statements for the past three years and found no material changes.
Twitter dropped 4.1 percent to $56.61, snapping a five-day, 31 percent rally. The microblogging service was cut to underperform from market perform by Peter Stabler, an analyst with Wells Fargo. Investors underestimated the company’s challenges, including varying degrees of user engagement to the service, Stabler wrote in a note.
Robert Peck, an analyst with Suntrust Robinson Humphrey Inc., reduced Twitter to neutral from buy, saying the stock’s valuation was “stretched.”