S&P 500 Climbs to Four-Year High as ECB Details Bond Plan
The Standard & Poor’s 500 Index climbed to its highest level since 2008 as the European Central Bank announced specifics of its bond-buying plan and data boosted optimism in the American economy.
JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC) and Cisco Systems Inc. jumped at least 4.2 percent, leading gains in the Dow Jones Industrial Average. (INDU) All 10 S&P 500 groups increased as Alcoa Inc. (AA) and Owens-Illinois Inc. (OI) climbed more than 2.8 percent to pace advances among raw-material shares. Chipmaker SanDisk Corp. (SNDK) rallied 8.4 percent after OCZ Technology Group Inc. (OCZ) blamed a shortage of certain flash-memory components for lower-than-estimated sales.
The S&P 500 climbed 2 percent, the most since June, to 1,432.12 at 4 p.m. in New York. The Dow added 244.52 points, or 1.9 percent, to 13,292, its highest level since December 2007. The Nasdaq-100 Index climbed 2.3 percent to almost a 12-year peak. More than five shares rose for each that declined on U.S. exchanges, with volume at 7.1 billion shares, or 18 percent above the three-month average.
“We are in a period where we are peeling away the onion little by little, all the uncertainties, what’s going to happen in Europe and what’s going to happen here,” Dan Veru, chief investment officer at Palisade Capital Management LLC in Fort Lee, New Jersey, said in a phone interview. His firm oversees $3.5 billion. “I think Draghi is serious about putting Europe on the positive path.”
Draghi said policy makers agreed to an unlimited bond-purchase program as they try to regain control of interest rates in the euro area. He said the ECB will have a “fully effective backstop to avoid destructive scenarios with potentially severe challenges for price stability.” The bond plan is the most ambitious yet in the central bank’s fight to save the euro after nearly three years of turmoil.
Service industries in the U.S. expanded in August at a faster pace than forecast, according to the Institute for Supply Management’s non-manufacturing index. (SPX) Claims for unemployment benefits fell to the lowest level in a month and American companies added more workers than forecast, separate reports showed today before the Labor Department payrolls data tomorrow.
The government’s employment report may show overall hiring climbed by 130,000 jobs in August while the jobless rate remained at 8.3 percent for a second month, according to the median forecasts by economists in a Bloomberg survey. The unemployment rate has stayed above 8 percent since February 2009.
“The market was looking for signs that the ECB and some part of the European Union would basically stimulate in Europe and guarantee the sovereign debt,” David Pearl, who oversees $24 billion as co-chief investment officer at New York-based Epoch Investment Partners, said in a phone interview. “Draghi pretty much gave what the market was looking for. The U.S. data is at least moving positively and we’re in a recovery.”
Today’s rally helped the S&P 500 break out of a 19-point trading range for the index’s close since Aug. 7. The gauge spent the past four weeks hovering around 1,400 as investors awaited policy clues from central banks. Federal Reserve Chairman Ben S. Bernanke said in Jackson Hole, Wyoming, last week that he wouldn’t rule out more stimulus.
“There’s a lot of buying, it’s really across the board,” Laszlo Birinyi, president of Birinyi Associates Inc. in Westport, Connecticut, said in a phone interview. “When you have this much breadth, it’s a very positive sign,” he said. Birinyi, who advised clients to buy stocks before the S&P 500 hit a 12-year low in March 2009, said an advance in the index this year to “1,500 is a very achievable target.”
The index has rallied 12 percent from a June low amid optimism central banks worldwide will act to spur growth and as corporate earnings beat analysts’ estimates.
Raw-materials, financial and technology shares rose the most among the 10 S&P 500 groups today, climbing at least 2.4 percent. The Morgan Stanley Cyclical Index jumped 3.2 percent. JPMorgan rose 4.3 percent to $38.69. Cisco Systems increased 4.4 percent to $19.73. Alcoa added 2.8 percent to $8.76.
Bank of America advanced 5 percent to $8.35. The second-biggest U.S. lender by assets agreed to sell Strategic Partners Inc. to private-equity investors Partners Group Holding AG and Avista Capital Partners. Bank of America has sold more than $50 billion in assets and businesses since Brian T. Moynihan took over as CEO in 2010, as it seeks to increase capital before stricter international rules come into force.
Owens-Illinois rose 8.9 percent, the most in the S&P 500, to $18.78. The world’s biggest maker of glass bottles reaffirmed that it will generate free cash flow of at least $250 million this year.
SanDisk rallied 8.4 percent to $44.01. OCZ, a maker of solid-state disk drives, said it experienced “a significant shortage” of certain so-called Nand flash memory components in August and its stock plunged 19 percent to $4.35. Micron Technology Inc. (MU), another manufacturer of computer-memory chips, climbed 7.8 percent to $6.68.
Amazon.com Inc. (AMZN) added 2.1 percent to a record $251.38. The company is updating its line of Kindle e-readers and tablets in a bid to stoke consumer demand as Google Inc. and Microsoft Corp. join the crowded market of machines challenging Apple Inc.’s iPad.
Navistar (NAV) International Corp. climbed 17 percent to $23.97. The maker of International brand trucks reported third-quarter results that topped analysts’ estimates. Lewis Campbell, who became interim chief executive officer after Dan Ustian was ousted amid an inquiry from regulators, said he expects “significant improvements” in the next 12 to 18 months.
First Solar Corp. jumped 7.4 percent to $20.03. The largest maker of thin-film photovoltaic panels won a contract to supply 25 megawatts for a project that Green Infra Ltd. is developing in India.
Walgreen Co. (WAG) fell 1.9 percent to $35.20. Sales in the three months ended Aug. 31 slid about 4.9 percent to $17.1 billion, the company said. That trailed the $17.2 billion average of analysts’ estimates compiled by Bloomberg. Walgreen has lost customers this year to CVS Caremark Corp. and Wal-Mart Stores Inc. after its agreement to provide prescriptions for Express Scripts Inc. customers expired.
Seagate Technology Plc (STX) dropped 2.6 percent, the most in the S&P 500, to $31.70. The world’s largest maker of computer disk drives was cut to hold from strong buy at Needham & Co.
VeriFone Systems Inc. (PAY) slumped 14 percent to $30.55 after the maker of credit-card terminals said that third-quarter revenue rose to $489.1 million, missing the average analyst estimate of $498.7 million in a Bloomberg survey.
The Chicago Board Options Exchange Volatility Index (VIX), known as the VIX, tumbled 12 percent to 15.60 as stocks rallied. U.S. options trading is poised for the biggest annual drop since 1988 as easing monetary policies worldwide reduced demand for protection against stock losses. Demand for options, often used by investors to hedge against declines in equity holdings, is retreating after the S&P 500 surged 14 percent this year.
The number of option contracts changing hands fell 13 percent to 2.70 billion during the first eight months of 2012, including a 43 percent slump in August, according to data compiled by Chicago-based Options Clearing Corp. Should the pace continue, that would end nine consecutive years of rising volume and mark the second-biggest drop since OCC data began in 1973. Charles Schwab Corp. estimates that trading will slip 9 percent for the whole year.
“There are few participants who believe downside protection in any great magnitude is needed right now,” Randy Frederick, managing director for active trading and derivatives at Charles Schwab in Austin, said in a phone interview yesterday. His firm has $1.83 trillion in client assets. “There is a good possibility that we could have a relatively calm market throughout the remainder of the year.”
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