Bloomberg News

S&P 500 Rallies to Highest Since 2008 on Stimulus Bets

September 07, 2012

U.S. stocks rose for the week, sending the Standard & Poor’s 500 Index to the highest since 2008, amid bets the Federal Reserve will stimulate the economy and as the European Central Bank announced a bond-buying plan.

Bank of America Corp. (BAC:US) and JPMorgan Chase & Co. climbed at least 5.8 percent for the week, following a surge in European lenders. Newmont Mining Corp., the largest U.S. gold producer, jumped 2 percent as the metal rose to a six-month high. Amazon.com Inc. added 4.4 percent after introducing a new line of Kindle e-readers and tablets. Facebook (FB:US) Inc. rallied 5.1 percent after Chief Executive Officer Mark Zuckerberg said he won’t start selling his holdings for at least a year.

The S&P 500 added 2.2 percent to 1,437.92, snapping a two- week decline, in its biggest rally since June. It rose within 10 percent of its all-time high in October 2007. (SPX) The Dow Jones Industrial Average gained 215.80, or 1.6 percent, to 13,306.64, its highest level since December 2007.

“It’s turned into a central bank put,” Ryan Larson, Chicago-based head of U.S. equity trading at RBC Global Asset Management (U.S.) Inc., said in a phone interview. His firm oversees $250 billion in assets. “Europe continues to move in the right step. In the U.S., there was no relief to Bernanke’s ‘grave concern’ about unemployment. The market is sensing that this will increase the odds if not force the Fed’s hands to announce some kind of additional policy easing.”

Bets on further stimulus measures grew as data showed payrolls rose less than projected and the unemployment rate was unexpectedly driven down by Americans leaving the labor force. On Aug. 31, Fed Chairman Ben S. Bernanke cited his concern about the jobless rate and said the central bank will provide additional stimulus as needed to promote a stronger recovery. The Fed’s Open Market Committee meets in the coming week and will release a statement on Sept. 13.

Bond Buying

American equities also joined a global rally as ECB President Mario Draghi announced an unlimited bond-buying program. Draghi said the ECB will have a “fully effective backstop to avoid destructive scenarios with potentially severe challenges for price stability in the euro area.”

“It looks like the European Union is going to survive at least for a while,” said Byron Wien, vice chairman of the advisory services unit of Blackstone Group LP, the world’s biggest private-equity firm. He spoke in a Sept. 6 phone interview from New York. “Mario Draghi looks like he’s serious about doing whatever it takes to provide liquidity.”

All 10 groups in the S&P 500 rallied during the holiday- shortened week as commodity and financial shares had the biggest gains, adding at least 3.5 percent. The Morgan Stanley (MS:US) Cyclical Index of companies most-tied to the economy advanced 3.6 percent. The Chicago Board Options Exchange Volatility Index, which measures the cost of using options as insurance against declines in the S&P 500, tumbled 18 percent, the most since June, to 14.38.

Financial Stocks

The KBW Bank Index (BKX) of 24 stocks gained 4.4 percent. The Financial Select Sector SPDR Fund (XLF:US), an exchange-traded fund, climbed 3.4 percent. Bank of America added 10 percent, the biggest gain in the Dow, to $8.80. JPMorgan (JPM:US) increased 5.8 percent to $39.30. Morgan Stanley rallied 14 percent to $17.08.

SunTrust Banks Inc. (STI:US) jumped 9.3 percent to $27.50. The eighth-largest U.S. lender by deposits announced plans to liquidate its stake in Coca-Cola Co. (KO:US) to help cover costs of restructuring bad loans.

Hartford Financial Services Group Inc. rose 8.6 percent to $19.47. The insurer agreed to sell (HIG:US) its retirement-plans business for $400 million to Massachusetts Mutual Life Insurance Co.

Gold Rallies

Gold producers rallied as the metal topped $1,700 an ounce on speculation that the Fed will provide further stimulus measures, lifting demand for gold as an inflation hedge. Newmont Mining (NEM:US) added 2 percent to $51.69. Freeport-McMoRan Copper & Gold Inc. (FCX:US), the biggest publicly traded copper producer, rose 9.2 percent to $39.43.

Amazon.com increased 4.4 percent to a record $259.14. Chief Executive Officer Jeff Bezos is retooling the company’s tablets as consumers face a widening array of choices, including new entries from Google Inc. and Microsoft Corp. At stake is a piece of a market that may reach $66.4 billion this year, according to research firm DisplaySearch.

Facebook jumped 5.1 percent to $18.98. Zuckerberg has yet to adopt a share sale plan, the Menlo Park, California-based company said in a filing with the U.S. Securities and Exchange Commission. The shares had been marking record lows since the first share sale lockup for insiders expired in August amid concern that businesses are spending less to advertise on the world’s largest social-networking website.

New IPhone

Apple Inc. (AAPL:US) climbed 2.3 percent to a record $680.44 after the company sent out invitations to a Sept. 12 product event in San Francisco, where it is expected to unveil a new iPhone with a larger screen and thinner body. The shares have risen more than sevenfold since Apple co-founder Steve Jobs introduced the first iPhone in January 2007.

The company is considering introducing an online service to stream music based on users’ tastes, according to two people with knowledge of the plans.

Navistar International Corp. (NAV:US) rallied 13 percent to $24.76. The maker of International brand trucks reported third-quarter results that topped (NAV:US) 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.

Walgreen’s Sales

Walgreen Co. (WAG:US) slumped 2.3 percent to $34.94 after posting fiscal fourth-quarter revenue that trailed estimates. 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.

Kraft Foods Inc. (KFT:US), the foodmaker that will split into two companies next month, fell 3.7 percent to $39.99 after Chief Financial Officer David Brearton told investors that 2012 and 2013 profit may be lower than expected.

VeriFone Systems Inc. (PAY:US) tumbled 6.5 percent to $32.48 after the maker of credit-card terminals reported third-quarter sales (PAY:US) that fell short of analysts’ estimates, citing unfavorable currency swings, competition in Europe and a fire in Brazil.

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net


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Companies Mentioned

  • BAC
    (Bank of America Corp)
    • $16.82 USD
    • -0.23
    • -1.37%
  • FB
    (Facebook Inc)
    • $76.55 USD
    • -2.49
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