Bloomberg News

U.S. Stocks Advance to One-Month High as Fed Meets

June 19, 2012

U.S. Stocks Advance to One-Month High as Fed Meets

Concern about a global slowdown and a worsening of Europe’s debt crisis put the S&P 500 on the brink of a so-called correction this month. Photographer: Richard Drew/AP Photo

U.S. stocks advanced, sending the Standard & Poor’s 500 Index to the highest level in more than a month, as investors speculated the Federal Reserve will announce more measures to stimulate the world’s largest economy.

Bank of America Corp. (BAC:US) climbed 4.5 percent as the Federal Housing Finance Agency said it plans to help banks avoid being forced to buy back mortgages amid concern lenders are tightening standards even for the most creditworthy buyers. FedEx Corp. (FDX:US), operator of the largest cargo airline, jumped 2.8 percent after pledging “significant cost reductions.” Microsoft Corp. (MSFT:US) increased 2.9 percent after unveiling a tablet computer.

The S&P 500 rose 1 percent to 1,357.98 at 4 p.m. New York time, gaining for a fourth day. The Dow Jones Industrial Average added 95.51 points, or 0.8 percent, to 12,837.33. Trading volume for exchange-listed stocks in the U.S. was about 6.8 billion shares, or almost in line with the three-month average.

“It’s possible that the Federal Reserve will do something else,” said David Kelly, who helps oversee about $394 billion as chief market strategist at JPMorgan Funds in New York. “It’s possible that they will do some further extension of Operation Twist. They seem overly sensitive to the possibility that the market will react badly to them not taking action.”

Signs of slowing growth amid Europe’s turmoil could mean the Fed, which began a two-day meeting today, could extend its so-called Operation Twist, according to JPMorgan Chase & Co. (JPM:US) and Jefferies & Co. The program involves selling short-term debt and buying longer-term bonds. A more aggressive response could be warranted if the Fed see high costs in a slowdown of growth.

Fed’s Options

The central bank may expand its balance sheet, extend Operation Twist and/or lengthen its short-term interest rate guidance beyond late 2014, Goldman Sachs Group Inc. chief economist Jan Hatzius wrote today.

“A decision not to ease is tantamount to a tightening,” he wrote in an e-mailed report to clients today. “At this point we’d be quite surprised if we saw no easing.”

Expectations for further policy action gave stocks their first back-to-back weekly gain since April on June 15. The S&P 500 earlier this month was on the brink of a so-called correction, or a 10 percent drop from a recent peak, on concern about a global slowdown and a worsening of Europe’s crisis.

Equities briefly pared gains as a German official said the Group of 20 leaders didn’t discuss any specific plans for Europe’s rescue funds to buy the bonds of euro-area governments. Haggling among Greek political leaders is set to continue for a third day over a coalition that will seek relief from austerity measures tied to emergency loans, with Pasok leader Evangelos Venizelos saying a new government could be ready by midday tomorrow. Spanish bond yields fell after yesterday’s surge.

100 Days

The S&P 500 (SPX) traded near its average price of the last 100 days of about 1,359. A rally above that level could be considered a harbinger of more gains, according to analysts who study charts to make forecasts. The Chicago Board Options Exchange Volatility Index, which measures the cost of using options as insurance against S&P 500 losses, rose 0.3 percent to 18.38, after slumping 25 percent in three days.

Seven out of 10 groups in the S&P 500 rose today as commodity, financial and industrial shares had the biggest gains. The Morgan Stanley Cyclical Index of companies most-tied to the economy increased 2 percent. The KBW Bank Index rallied 2 percent as all of its 24 stocks advanced.

Bank of America (BAC:US) surged 4.5 percent to $8.11. The FHFA will detail flaws that would trigger a putback request, Stefanie Johnson, a spokeswoman for the FHFA, said in a statement.

Wealth Manager

Julius Baer Group Ltd. is in talks with Bank of America about acquiring its Merrill Lynch wealth management business outside the U.S. The Bank of America wealth unit may fetch about $2 billion, said a person familiar with the matter.

JPMorgan added 2.2 percent to $35.38. Chief Executive Officer Jamie Dimon told U.S. House members that he complied with disclosure rules in warning investors about changes that contributed to the bank’s trading loss of at least $2 billion. It was his second appearance on Capitol Hill in less than a week to explain how the firm lost control of its derivatives trades.

FedEx, which is considered an economic bellwether, gained 2.8 percent to $91.01. The company’s express unit, which accounts for the bulk of sales, is developing a detailed strategy to improve efficiency in its operating expenses, Chief Financial Officer Alan Graf said on an earnings call.

Microsoft added 2.9 percent to $30.70. The Windows-powered tablet computer called Surface alters the company’s strategy of focusing on software and relying on partners to make the machines, in a renewed attempt to take on Apple Inc. (AAPL:US)’s iPad. Nvidia Corp. (NVDA:US) rallied 6.7 percent to $13.24. Microsoft said the tablet computer will be powered by its Tegra processor.

Oracle’s Results

Oracle Corp. (ORCL:US) advanced 3.1 percent to $27.96. The world’s largest maker of database software reported that fiscal fourth- quarter profit topped analysts’ estimates, buoyed by sales of new software licenses.

Goodyear (GT:US) Tire & Rubber Co. and Cooper Tire & Rubber Co. (CTB:US) rose as a global rubber deficit is projected to turn into a surplus in the second half, driving down the price tiremakers pay for the raw material. Goodyear increased 5.6 percent to $11.53. Cooper Tire added 3.2 percent to $17.23.

MetLife Inc. (MET:US) jumped 5 percent to $30.88. The largest U.S. life insurer got more time to submit a fresh capital plan to the Fed as the firm seeks to raise its dividend and resume buybacks after being twice blocked by the regulator.

Take Over

J.C. Penney Co. (JCP:US) tumbled 8.6 percent to $22.25, the lowest since 2010. The company’s merchandising and marketing chief is leaving, and Chief Executive Officer Ron Johnson will take over his duties, following a marketing strategy that has flopped with shoppers. The departure comes as Johnson struggles to remake the retailer’s image and overhaul its pricing strategy.

“They weren’t happy with the marketing direction, and it wasn’t resonating with consumers,” said Lizabeth Dunn, an analyst with Macquarie Group in New York. “They really want to emphasize price and product more obviously in marketing.”

Walgreen Co. (WAG:US) dropped 5.9 percent to $30.09. The largest U.S. drugstore chain agreed to pay $6.7 billion for a 45 percent stake in the U.K.’s Alliance Boots, with an option to gain full control in about three years.

Barnes & Noble Inc. (BKS:US) slumped 4 percent to $14.63. The largest U.S. bookstore chain posted fourth-quarter revenue that trailed analysts’ estimates.

The peak in stock trading during the market’s decline after April was less than half the volume triggered during the slumps in 2011 and 2010, a sign bears could come back in force, according to Bank of America.

Changed Hands

About 4.67 billion shares changed hands on the New York Stock Exchange on June 1, the busiest trading since the S&P 500 started its retreat from this year’s high in April, according to data compiled by Bank of America and Bloomberg. That compared with peak volume of more than 9.5 billion in the previous two years, the data show.

The S&P 500 tumbled 9.9 percent from April 2 through June 1 and has since risen 6.3 percent. The relatively slow trading during the retreat suggests a lack of “volume shakeout” and means bears may still have the power to drive the market lower, according to Mary Ann Bartels, a New York-based technical analyst at Bank of America.

“While the short-term technicals support the case for a rally, the risk is that sellers are not yet completely exhausted and an adverse macro news event could trigger a future shakeout,” Bartels wrote in a note dated yesterday.

To contact the reporter on this story: 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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Companies Mentioned

  • BAC
    (Bank of America Corp)
    • $15.52 USD
    • 0.07
    • 0.45%
  • FDX
    (FedEx Corp)
    • $150.63 USD
    • 0.63
    • 0.42%
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