U.S. Stocks Climb as Tech Shares Rally While Rate Anxiety Ebbs

  • Applied Materials outlook sparks surge in tech companies
  • S&P 500 has gone a year since reaching all-time high

Investment Strategy Shifts to Beat Volatility

U.S. stocks rose, with the S&P 500 rebounding from a seven-week low, led by a rally in technology shares amid ebbing anxiety over the potential for higher interest rates as early as next month.

Applied Materials Inc. surged 14 percent after forecasting sales that may beat analysts’ estimates, spurring gains among tech companies. Chipmakers jumped the most since January, with Intel Corp. rising 1.8 percent. Apple Inc. increased 1.1 percent to its first weekly advance in five. Equities trimmed gains in afternoon trading as banks lost momentum after Treasuries erased losses, sending yields lower for a second day.

The S&P 500 added 0.6 percent to 2,052.32 at 4 p.m. in New York, halting a weekly losing streak at three and regaining its advance for the year. The Dow Jones Industrial Average climbed 65.54 points, or 0.4 percent, to 17,500.94. It wasn’t enough to save the index from a fourth weekly loss, the longest stretch since October 2014. The tech-heavy Nasdaq Composite Index rose 1.2 percent. About 6.7 billion shares traded hands on U.S. exchanges, 9 percent below the three-month average.

“Eventually, markets will realize that the world is not falling apart,” said Ben Kumar, an investment manager at Seven Investment Management LLP in London. “The Fed’s message for global growth is quite positive. We saw Wal-Mart’s decent results, which suggest that U.S. consumers are still turning up at stores. There is always something to panic about, but underneath, things are kind of OK.”

To that point, a report today showed sales of previously owned homes increased in April to a three-month high, led by a surge in the Midwest and indicating further improvement in the housing market during the busy spring-selling season.

Minutes from the Fed’s April meeting this week signaled officials are willing to raise rates in June if the economy shows sustained improvement. Concern that the central bank will act too soon had weighed on the S&P 500, threatening to drag it toward the longest stretch of weekly losses in 19 months before being spared by today’s advance.

Still, investors see plenty of obstacles to a Fed move next month. A referendum in Britain on June 23 will decide whether the country remains a member of the European Union, and growth momentum in China is fading following a credit-fueled rebound earlier this year. Traders now price in a 26 percent chance of higher rates in June, from 4 percent on Monday. The first month with at least even odds of a hike has moved to September from as late as February a week ago.

Fear of China’s slowdown spreading and the impact of higher interest rates have been two major sources of investor angst in the year since the S&P 500 last climbed to a record. Worries last summer over weakening in world’s second-largest economy and looming rate increases pushed the index into its first correction in four years. Those anxieties flared again in January, with oil plunging to a 12-year nadir, as the benchmark suffered its worst-ever start to a year.

After rallying from a 22-month low in February to within 1.3 percent of the record on April 20, the S&P 500 lost momentum last month amid disappointing results from technology giants Apple Inc. and Microsoft Corp., as well as signs of a lukewarm economic pickup. The gauge closed today 3.7 percent from its all-time high reached on May 21, 2015.

‘Grinding Sideways’

“The market continues to be grinding sideways,” said Joe Bell, a Cincinnati-based senior equity analyst at Schaeffer’s Investment Research Inc. “Stocks that were doing poorly the past couple years -- mostly energy-related -- are starting to make higher highs and most of that has coincided with the U.S. dollar breaking down, but the recent rebound has hurt those sectors. If we continue to see weakness in the dollar, it will benefit not just energy and industrials but any of those multinational companies that sell goods overseas.”

In Friday’s trading, nine of the S&P 500’s 10 main industries gained, with technology shares rising 1.2 percent. Health-care, raw-materials and consumer discretionary increased more than 0.6 percent. Consumer staples fell 0.4 percent, while utilities and phone companies were little changed.

The CBOE Volatility Index fell 6.9 percent to 15.20, slipping from a two-month high. The measure of market turbulence known as the VIX still capped its first back-to-back weekly gains since February.

AMAT Leads

Applied Materials soared the most since November 2008, invigorating a wobbly tech group that has alternated between gains and losses for six sessions. The biggest maker of machinery used to manufacture semiconductors forecast better-than-expected sales amid a surge in demand from chipmakers upgrading production technology. Lam Research Corp. and Micron Technology Inc. rose more than 4.5 percent. Tech companies remain the worst performers in the benchmark since its recent high in April.

Another group that has swung daily between gains and losses for the past week -- biotechnology companies -- rallied today to pace an advance in health-care. Endo Pharmaceuticals Plc climbed for the fifth time in six days, rising 4.5 percent to bring its gain during the span to 15 percent. Amgen Inc. added 1 percent. Merck & Co. and Pfizer Inc. helped propel the Dow, climbing more than 0.9 percent.

A group of retailers rose to help consumer discretionary companies snap a three-day losing streak. Gap Inc. increased 4.2 percent, advancing for a second day after its longest selloff in more than four years. The company is closing all of its 53 Old Navy outlets in Japan. Target Corp. rebounded 2.4 percent after three days of losses, and Netflix Inc. added 3.3 percent.

McDonald’s Corp. was a drag on discretionary shares and the Dow, dropping 2.2 percent to a two-month low. The fast-food chain’s shares fell for a fourth day amid the longest slide since February. The stock is down nearly 7 percent since reaching an all-time high on May 10.

Consumer staples slipped for the third time in four days, as Campbell Soup Co. tumbled 6.4 percent after posting a sixth-straight quarter of declining sales. The shares posted the worst drop since December 2008 after surging to a record on May 12. Church & Dwight Inc. fell 2.6 percent. The company yesterday denied reports it’s engaged in talks with potential acquirers.

Among other companies moving on corporate news, Foot Locker Inc. dropped 6.5 percent to the lowest since Feb. 18 after its quarterly sales missed analysts’ forecasts. The results dented Nike Inc.’s shares which lost 1 percent. Ross Stores Inc. sank 5.5 percent to a four-month low after its profit trailed estimates.

Deere & Co. slid for a fourth day, falling the most in nine months after the world’s biggest agricultural equipment manufacturer cut its fiscal full-year earnings outlook as lower commodity prices hurt farmers’ income and a glut of unsold machinery continues to pile up at dealerships.

Before it's here, it's on the Bloomberg Terminal.