U.S. Stocks Advance Amid Economic Data Before Fed Rate Meeting

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  • Resilient consumers may be looking past market turbulence
  • Investors 'waiting on the Fed' interest rate decision

Two Reasons the Fed May Hold Off on a Rate Hike

U.S. stocks rallied, with the Standard & Poor’s 500 Index closing at its highest level in more than two weeks, as retail sales data showed a resilient consumer before the Federal Reserve decides on Thursday whether to raise interest rates.

United Parcel Service Inc. and FedEx Corp. added more than 2.5 percent to pace industrials. Citigroup Inc. and U.S. Bancorp gained at least 2 percent as lenders rose for the first time in three days. Microsoft Corp. and Google Inc. paced a climb among technology companies, rising more than 1.9 percent. Energy shares rebounded, with Chevron Corp. up 1.9 percent as oil gained.

The S&P 500 gained 1.3 percent to 1,978.09 at 4 p.m. in New York, its highest since Aug. 28. The Dow Jones Industrial Average added 228.89 points, or 1.4 percent, to 16,599.85. The Nasdaq Composite Index climbed 1.1 percent. About 5.9 billion shares traded hands on U.S. exchanges, about 18 percent below the three-month average.

“Everybody’s waiting on the Fed,” said John Canally, chief economic strategist at LPL Financial Corp. in Boston. “We saw a pretty solid gain in retail sales in August and an upward revision to July. People have been worried about a possible spillover from China and that’s just not happening.”

A report today showed retail sales climbed for a second straight month, a sign consumers may be looking past recent volatility in financial markets. Although confidence has taken a hit from stock-market turmoil and global-growth concerns, the data show households are still putting their savings from cheap energy to work.

Other data showed that while consumers are holding up, factories are struggling. U.S. factory production declined in August by the most since January 2014 as automakers scaled back after a surge the month before and a stronger dollar weighed on demand from overseas customers.

Meanwhile, a quarterly survey said chief executive officers of large U.S. companies are becoming less optimistic about the prospects for the world’s largest economy, with more leaders planning to cut capital spending and employment in the next six months. The Business Roundtable CEO Economic Outlook Index fell to the lowest level since 2012, according to results compiled by Bloomberg.

Rate Bets

Speculation has increased that the Fed will delay raising rates as China ignited concern that its slowdown could weigh on global growth. While investors remain confident the central bank will increase borrowing costs this year, traders are pricing in just a 30 percent chance of action on Thursday, down from 48 percent before China’s currency devaluation last month. Odds of a move at the December gathering are 63 percent, according to data compiled by Bloomberg.

Equities have been particularly volatile recently, with the Chicago Board Options Exchange Volatility Index jumping a record 135 percent in August amid the first 10 percent correction in U.S. equities in four years. Since 1990, the measure of market turbulence known as the VIX has averaged 16.9 when U.S. policy makers started raising rates. It fell 7.1 percent Tuesday to 22.54. If the Fed increases rates this week, it would be the first time since 1946 it has done so within a month of a correction.

The bull market that began in March 2009 is the third longest in history, but it’s the longest ever to go without an increase by the Fed, eclipsing the nearest competitor by more than eight months. Economists are evenly split on whether there will be a hike, with about half the 81 surveyed by Bloomberg predicting a rate increase.

After sliding into a correction, the S&P 500 has rallied 5.9 percent since Aug. 25, though the benchmark is still down 7.2 percent from its all-time high set in May. The gauge has lost 3.9 percent this year.

Broad Rally

All of the S&P 500’s 10 main groups advanced Tuesday, with industrial, financial and health-care companies rising the most. Eight groups rose more than 1 percent. Semiconductors climbed for a fourth day, their longest streak in almost three months. Avago Technologies Ltd. and Skyworks Solutions Inc. increased 2.4 percent.

UPS rallied 3.6 percent, the most in seven weeks. The delivery company plans to hire about the same number of holiday season workers this year as in 2014 as the company recalibrates its response to the annual shipping surge from Christmas-gift shipping. FedEx reached a three-week high, up 2.5 percent. The Dow Jones Transportation Average gained 1.9 percent. Among other industrials, mining equipment maker Joy Global Inc. jumped 5.6 percent.

Ford Motor Co. and General Motors Co. climbed more than 1.2 percent, while Fiat Chrysler Automobiles NV rose 3.3 percent. GM CEO Mary Barra said the U.S. carmaker will continue to resist Fiat Chrysler CEO Sergio Marchionne’s call to combine with his company. Fiat Chrysler and the United Auto Workers union agreed to extend their current four-year contract, that was set to expire at midnight Monday, while they keep negotiating toward a new accord.

Financial companies rallied with rising bond yields, as investors speculated that higher interest rates would help lift profitability. The 10-Year U.S. Treasury yield reached the highest since July. E*Trade Financial Corp., Morgan Stanley and Bank of America Corp. each gained at least 2.1 percent.

Drugmakers led the advance among health-care shares. Allergan Plc and Merck & Co. climbed more than 2.3 percent. Gilead Sciences Inc. and Pfizer Inc. added at least 1.4 percent. The Nasdaq Biotechnology Index increased 1.1 percent to regain the 0.5 percent lost on Monday.

Ensco Plc and Transocean Ltd. led the energy group higher, climbing more than 4.6 percent. West Texas Intermediate crude advanced 1.3 percent for just its second increase in seven sessions. Cheniere Energy Inc. added 1.2 percent, trimming an earlier 4.2 percent climb, after Carl Icahn increased his stake in the natural-gas exporter this month to 9.6 percent from 8.2 percent.

Host Hotels & Resorts Inc. lost 2.3 percent and Marriott International Inc. slid 1 percent amid concerns about a gauge of revenue after Pebblebrook Hotel Trust cited weaker-than-anticipated hotel demand in August and September. Pebblebrook fell 1 percent, paring an earlier 9.3 percent drop.

— With assistance by Lu Wang, and Roxana Zega

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