U.S. Stocks Climb a Third Week as Fed Repeats Low-Rate Pledge
March 20, 2010, 10:45 AM EDTBy Craig Trudell
March 20 (Bloomberg) -- U.S. stocks advanced, sending the Standard & Poor’s 500 Index to a third straight weekly gain, as the Federal Reserve said it will keep interest rates near zero to nurture the economy’s recovery.
The Dow Jones Industrial Average fell yesterday, breaking an eight-day winning streak, after India’s unexpected interest rate increase raised concern the end of stimulus measures will curtail global growth. General Electric Co. climbed 6 percent after saying it may resume dividend increases next year. Wal- Mart Stores Inc. rallied to the highest price in 14 months as Citigroup Inc. recommended buying the stock. Intel Corp. added 3.4 percent after releasing a new line of computer chips.
The S&P 500 climbed 0.9 percent to 1,159.90 this week. It closed at 1,166.21 on March 17, the highest level since September 2008. The Dow Jones Industrial Average gained 117.29 points, or 1.1 percent, to 10,741.98.
“The Fed came out this week and said, ‘Everyone just relax. We’re not going to raise rates until we see the whites of the eyes of this economic recovery,’” said Don Wordell, a fund manager at Atlanta-based RidgeWorth Capital Management Inc., which oversees about $62 billion. “That was a big boost for equity markets.”
The Fed cut its target for the overnight lending rate between banks to near zero in December 2008, helping end a contraction in U.S. gross domestic product last year and driving a 71 percent rally in the S&P 500 since March 2009.
Housing, Jobs
Fed officials repeated their pledge on March 16 to keep the main interest rate near zero for an “extended period” and confirmed that emergency measures to prop up the housing market will end as planned this month. While the economy has “continued to strengthen,” policy makers noted that “housing starts have been flat at depressed levels” and “employers remain reluctant to add to payrolls.”
GE advanced 6 percent to $18.07 for the biggest gain in the Dow average. It closed at $18.19 on March 18, the highest price since December 2008. The world’s biggest maker of jet engines, medical-imaging equipment and power turbines may boost its dividend in 2011 following a “snapback” in its finance unit, Chief Financial Officer Keith Sherin said.
GE cut its annual dividend to 40 cents from $1.24 in February 2009, the first cut since 1938, as the global recession and credit crunch reduced profit at the finance division.
Wal-Mart climbed 2.7 percent to $55.34 and rose to a 14- month high of $55.99 on March 16. The world’s biggest retailer was raised to “buy” from “hold” at Citigroup, which said the company is set to win market share with price cuts.
Server Chips
Intel rose 3.4 percent to $21.99, rallying for the third consecutive week. The world’s largest semiconductor maker released a new line of server chips, stoking optimism that it can capitalize on a rebound in demand for computers.
LSI Corp., which makes chips for International Business Machines Corp. and Seagate Technology, soared 15 percent to $6.41 for the biggest gain in the S&P 500. It raised its sales and profit forecasts.
FedEx Corp. jumped 5.7 percent to $91.05. The world’s largest cargo airline said quarterly profit more than doubled on increased shipments in Asia and Europe as the global economy improves. Per-share profit excluding some items was 76 cents in the fiscal third quarter, beating the average analyst estimate by 4.7 percent.
Fight in Europe
The S&P 500 had fallen 8.1 percent between Jan. 19 and Feb. 8 on concern Greece’s budget deficit would cause a financial crisis. The index fell the past two days as leaders in Greece, France and Germany jostled over whether aid should come from the European Union or International Monetary Fund.
Greek Prime Minister George Papandreou is racing to secure an explicit pledge of European aid and cut his country’s borrowing costs as 20 billion euros ($27 billion) of debt comes due in the next two months. While French President Nicolas Sarkozy said the euro region would rescue Greece if necessary, German Chancellor Angela Merkel’s government signaled on March 18 that it’s ready to turn its back and force Papandreou to seek IMF assistance.
“The near-term implication of the Greece issue is a flight back to dollars,” said James Swanson, Boston-based chief investment strategist at MFS Investment Management, which oversees about $187 billion. “For the next week, that probably increases the value of dollar because people worry about whether Greece will get bailed out.”
Euro, Yen, Pound
The Dollar Index, which measures the currency against the euro, yen, pound, Canadian dollar, Swedish krona and Swiss franc, advanced 1.2 percent this week.
Consol Energy Inc., a coal and natural gas producer, plunged 16 percent to $45.55 after falling every day this week. It agreed to buy Dominion Resources Inc.’s natural gas and oil exploration and production business for $3.48 billion to expand its Marcellus Shale holdings. Consol has fallen the most in the S&P 500 since March 12.
David Tice, chief portfolio strategist for bear markets at Federated Investors Inc., said he still expects the S&P 500 to plunge following the biggest rally since the 1930s. The measure may fall to 400, he said.
His bearishness has proved wrong over the past year. In May, he said the index would sink to 400 within six months. He repeated the forecast in November. The S&P 500 has surged from 676.53 on March 9, 2009.
--Editors: Stephen Kleege, Nick Baker
To contact the reporter on this story: Craig Trudell at ctrudell1@bloomberg.net.
To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net.
