Bloomberg News

U.S. Stocks Advance as Fed Boosts Economic Outlook

March 17, 2012

Traders work in the S&P 500 pit of the CME Group's Chicago Board of Trade on Friday, March 16, 2012. Photographer: Tim Boyle/Bloomberg

Traders work in the S&P 500 pit of the CME Group's Chicago Board of Trade on Friday, March 16, 2012. Photographer: Tim Boyle/Bloomberg

U.S. stocks rose for the fifth straight week as the Federal Reserve raised its assessment of the economy and let banks such as JPMorgan Chase & Co. (JPM) boost dividends after reviewing their financial strength.

JPMorgan rallied 8.6 percent to help lead financial shares in the Standard & Poor’s 500 Index (SPX) to a 5.9 percent advance, the most among 10 industries. Bank of America Corp. (BAC) surged 22 percent. Apple Inc. (AAPL) increased 7.4 percent and topped $600 for the first time during the week as the company started selling its new iPad. Alcoa Inc. (AA) and General Electric Co. (GE) rose more than 6 percent after the Fed said the economic outlook has improved and strains on global markets have eased.

The S&P 500 rose 2.4 percent to 1,404.17 for the week, climbing to the highest level since May 2008. It has rallied 10 out of 11 weeks this year. The Dow Jones Industrial Average rallied 310.6 points, or 2.4 percent, to 13,232.62.

“The main theme for this week has been positive economic numbers,” Chad Morganlander, a Florham Park, New Jersey-based money manager at Stifel Nicolaus & Co., which oversees more than $116 billion in client assets, said in a telephone interview. For banks, “a major overhang for them has been alleviated due to the successful stress tests.”

Stocks gained after the central bank said on March 13 that the economic outlook has improved as the labor market gathers strength. Claims for jobless benefits matched the lowest level in four years, according to Labor Department data released two days later. The Fed also said 15 of the 19 largest banks would maintain adequate capital levels in a severe recession even if they kept paying dividends and buying back stock.

Bull Market Extended

U.S. stocks completed the third year of a bull market that followed the global financial crisis, rallying on speculation the economy will continue to recover from the worst contraction since the Great Depression amid low interest rates. The S&P 500 has risen 28 percent from its 2011 low in October on better- than-estimated earnings and economic data. The gauge is up 12 percent in 2012, poised for its best first quarter since 1998. The index is still 10 percent below its October 2007 record of 1,565.15.

Financial shares in the S&P 500 increased the most in the S&P 500 for the week, advancing 5.9 percent on the Fed’s positive evaluation of the economy and stress-test results. Industrial and technology companies had the second- and third- biggest gains, adding more than 3 percent. Utilities were the only group to decline, losing 0.5 percent.

Financials Rally

Financial companies were boosted after most banks passed the Fed’s stress tests. Bank of America rose 22 percent to $9.80, the most of any company in the S&P 500, driven by its positive test results. It was one of six bank-holding companies with large trading, private equity and derivatives activities to be tested against a hypothetical “global market shock.”

JPMorgan also passed its stress test, pushing its stock up 8.6 percent for the week to $44.57. The company raised its quarterly dividend 20 percent to 30 cents per share following its completion of the test. It also authorized a $15 billion stock-repurchase program, with $12 billion approved for 2012.

Wells Fargo & Co. (WFC), the biggest U.S. lender by market value, rose 7 percent to $33.89 after increasing its quarterly dividend by 83 percent to 22 cents a share.

‘Embolden Investor Confidence’

“These dividend moves embolden investor confidence of an improving outlook for the financial health of the banking industry,” said Morganlander. “It’s pushed forward a positive message that the major U.S. banks are well-capitalized.”

Thomas Lee, JPMorgan’s chief U.S. equity strategist, and Jonathan Golub, his counterpart at UBS AG, said in reports that financial companies may add to their current rally if longer- term interest rates continue to rise, boosting profitability from lending. Ten-year Treasury yields surged 27 basis points, or 0.27 percentage point, to 2.29 percent during the week as growing economic optimism diminished demand for the relative safety of U.S. debt.

The S&P Information Technology index rose 3.1 percent for the week as Apple started selling its new iPad. Apple, which makes up 21 percent of the index, gained 7.4 percent to $585.57 after touching a record $600.01. The new iPad is the biggest upgrade yet to Apple’s tablet before Microsoft Corp. introduces new software for competing devices.

“Depending on how that does and how the first quarter looks for them, that could be some further exciting news for the market,” John Carey, who helps oversee about $220 billion at Pioneer Investments in Boston, said in a telephone interview.

Advanced Micro Devices Inc. (AMD) gained 8.2 percent to $8.20. The second-largest maker of processors for personal computers was upgraded to buy from hold at Jefferies Group Inc. on projected market-share gains and improving manufacturing output. Corning Inc. (GLW), the largest maker of glass for flat-panel television sets, rose 7.8 percent to $14.33.

“We don’t have any earnings right now, so people are looking more at the macroeconomic news and taking encouragement from that,” said Carey. “Over the next couple of weeks we’ll start to have some more company-specific news that could move the market.”

To contact the reporter on this story: Joseph Ciolli in New York at jciolli@bloomberg.net

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


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