Bloomberg News

Stocks Gain as Treasuries Fall on Fed’s Economic Outlook

March 13, 2012

Frank T. Masiello of Barclays Capital works at the New York Stock Exchange. Photographer: David Paul Morris/Bloomberg

Frank T. Masiello of Barclays Capital works at the New York Stock Exchange. Photographer: David Paul Morris/Bloomberg

U.S. stocks rose, sending the Dow Jones Industrial Average to the highest level since 2007, and Treasuries fell after the Federal Reserve raised its assessment of the economy and JPMorgan Chase & Co. increased its dividend.

The Standard & Poor’s 500 Index (SPX) added 1.8 percent to 1,395.95 at 4 p.m. New York time and the Dow climbed 217.97 points to 13,177.68. The Chicago Board Options Exchange Volatility Index dropped to 13.99, the lowest intraday level since 2007. Yields on 10-year Treasuries advanced a fifth day, reaching 2.13 percent. S&P 500 futures rose 0.1 percent at 4:53 p.m. while Citigroup retreated 3 percent after the Fed said it failed a stress test.

The U.S. central bank said the economic outlook has improved as the labor market gathers strength. Policy makers refrained from new action to lower borrowing costs. Gains in equities were also spurred by U.S. Commerce Department data showing retail sales jumped 1.1 percent in February. JPMorgan’s shares rallied 7 percent after the bank boosted its dividend and announced a $15 billion buyback.

“People are realizing that the world is not ending,” John Canally, who helps oversee about $330 billion as an economist and investment strategist at LPL Financial Corp. in Boston, said in a telephone interview. “There’s a lot of good positive momentum in the market. The retail sales data is helping.”

The dollar strengthened against the euro and yen. Copper futures rallied 1.8 percent, crude oil rose 0.4 percent and gold declined 1.6 percent in electronic trading.

VIX Declines

Today’s rally pushed the S&P 500 above its March 1 peak, completing its recovery from the subsequent three-day loss. Before the Fed’s comments, the Chicago Board Options Exchange Volatility Index, or VIX, fell to an almost five-year intraday low of 13.99. It’s a gauge of how much investors are paying to protect against losses in the S&P 500, which has rallied five straight days. The VIX ended the day at 14.80, down 5.4 percent.

JPMorgan led financial shares higher. The biggest U.S. bank raised its quarterly dividend to 30 cents from 25 cents and authorized a share-repurchase plan as lenders respond to the Fed’s tests of how they would fare in an economic decline. Bank of America Corp. and Goldman Sachs Group Inc. advanced more than 6.2 percent.

Citigroup declined after the New York Stock Exchange closed at 4 p.m. The third-largest U.S. bank failed to meet the Fed’s minimum requirements in a stress test when examiners considered the effects of the firm’s plan for managing capital.

The Fed said at 4:30 p.m. New York time that 15 of the 19 largest U.S. banks could maintain adequate capital levels even in a recession scenario in which they continue paying dividends and buy back stock.

Apple, Transports

Apple Inc. rose 2.9 percent, rallying for a fifth straight day, as Jefferies Group Inc. raised its share-price estimate to $699. That helped send the Nasdaq Composite Index above 3,000 for the first time since 2000. The Dow Jones Transportation Average, considered a proxy for economic growth, climbed 2.1 percent.

German bunds fell, pushing 10-year yields up by the most in a month, after a report showed investor confidence in Europe’s largest economy improved, sapping demand for the region’s safest securities. The yield on the 10-year bund rose six basis points, or 0.06 percentage point, to 1.82 percent.

Greek bonds issued to investors as part of the nation’s debt swap declined on their first full day of trading. The yield on the 2 percent bonds due in February 2023 rose 57 basis points, to 19.02 percent.

Spanish securities slipped after European finance chiefs meeting yesterday called on the nation to make deeper budget cuts. The yield on the nation’s 10-year bond yield climbed eight basis points to 5.13 percent.

To contact the reporters on this story: Nick Baker in New York at nbaker7@bloomberg.net; Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net


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