U.S. stocks rose, erasing an earlier loss for the Standard & Poor’s 500 Index, after comments by Speaker of the House John Boehner and President Barack Obama fueled optimism an agreement can be reached in budget talks.
Costco Wholesale Corp. (COST:US) advanced 6.3 percent after saying it plans to pay a special dividend. J.C. Penney Co. rallied 4.6 percent as consumer staples and discretionary stocks posted gains among 10 groups in the S&P 500. Knight Capital Group Inc. (KCG:US) jumped 15 percent after receiving takeover offers from Getco LLC and Virtu Financial LLC. Cliffs Natural Resources Inc. (CLF:US) dropped 1.3 percent as commodities declined.
The S&P 500 climbed 0.8 percent to 1,409.93 in New York, after erasing a decline of as much as 1 percent. The Dow Jones Industrial Average added 106.98 points, or 0.8 percent, to 12,985.11 today. About 6.1 billion shares traded hands on U.S. exchanges today, in line with the three-month average, according to data compiled by Bloomberg.
Obama “was confident of something being done by the end of the year,” Thomas Garcia, head of equity trading at Santa Fe, New Mexico-based Thornburg Investment Management Inc., said in an e-mail. His firm oversees about $80 billion. “This is something that the market is worried about not getting done by year-end, so if they can get it done, it would provide some relief. The market doesn’t like uncertainty.”
Equities reversed declines as Boehner, an Ohio Republican, said he is optimistic lawmakers engaged in budget talks can “avert this crisis sooner rather than later.” He made his remarks to reporters, while saying he continues to oppose the expiration of tax cuts for top earners and Democrats need to get “serious” on budget cuts. Obama said separately at the White House, “My hope is to get this done before Christmas.”
Stocks fell earlier after Erskine Bowles, co-chairman of Obama’s 2010 fiscal commission, said it’s unlikely the president and Congress will reach a deal by the end of this year. The president met with business leaders today, including Goldman Sachs Group Inc. Chief Executive Officer Lloyd Blankfein.
The S&P 500 has declined 1.3 percent since Obama was re-elected on Nov. 6 as he seeks a budget agreement with the Republican-controlled House. The deal is aimed at avoiding $607 billion of automatic tax increases and spending cuts that come into effect next year.
Sales of new U.S. homes dropped 0.3 percent to a 368,000 annual pace following a revised 369,000 rate in September that was weaker than initially reported, figures from the Commerce Department showed today in Washington. The median estimate of 74 economists surveyed by Bloomberg called for a 390,000 sales pace.
The U.S. economy expanded at a “measured pace” in recent weeks as gains in consumer demand and housing were tempered by a slowdown in manufacturing and the impact of superstorm Sandy, the Federal Reserve said today in its Beige Book business survey, which is based on reports from the Fed’s 12 district banks.
The report indicates that Fed policy makers are unlikely to curtail monthly purchases of $40 billion in housing debt to boost the three-year economic expansion. It also bolsters Fed Chairman Ben S. Bernanke’s view that an agreement on reducing long-term federal budget deficits without abrupt tax increases and spending cuts would remove a barrier to growth.
“The market is at the mercy of the fiscal cliff until we get some sort of resolution,” Liz Ann Sonders, the New York-based chief investment strategist at Charles Schwab Corp., which has $1.9 trillion in client assets, said by phone. “The worst scenario in general, particularly for psychology, would be just a total can kick -- something like, ‘We can’t come up with a solution. We’re just going to kick this thing six months down the road, without giving the market a path between now and then.’”
Costco advanced 6.3 percent for the biggest gain in the S&P 500 to $102.58. The largest U.S. warehouse-club chain said it plans to pay shareholders a special dividend totaling about $3 billion. Costco is among more than 16 companies in the Russell 1000 Index that have set a special dividend this quarter, according to data compiled by Bloomberg. Dillard’s Inc., Las Vegas Sands Corp. and Carnival Corp. are among the others.
“We would expect this trend to continue through year-end,” Dane Mott, a San Francisco-based accounting analyst at JPMorgan Chase & Co., wrote yesterday in a report. Mott, based in San Francisco, wrote that companies are seeking to “take advantage of the favorable tax treatment for dividends in 2012 relative to the potential environment in 2013.”
Payouts made this year are subject to a 15 percent federal tax. Next year’s rate may rise to as high as 43.4 percent as part of the fiscal cliff.
J.C. Penney rallied 4.6 percent to $18.32 as consumer stocks rallied. Coach Inc. (COH:US) also gained, rising 4.4 percent to $60.15, as discretionary companies jumped 1.3 percent. Wal-Mart Stores Inc. (WMT:US) added 1.5 percent to $70.56, as staples companies rose 0.9 percent.
Advanced Micro Devices Inc. (AMD:US) rose 4.3 percent to $1.96. Reuters reported that the second-largest maker of personal-computer processors is selling its Austin, Texas, campus to raise cash. The Sunnyvale, California-based company expects to raise as much as $200 million in the sale, Reuters reported, citing an unnamed spokesman.
Knight Capital climbed 15 percent to $3.42. Getco, the Chicago-based high-frequency trader, offered cash and stock that values Knight at $3.50 a share, an 18 percent premium from yesterday’s close, according to a filing today.
Virtu submitted a bid to buy Knight for about $3 a share, a person with direct knowledge of the matter said. Knight was bailed out by six financial companies in August after losing more than $450 million in a trading malfunction.
Green Mountain Coffee (GMCR:US) Roasters Inc. surged 27 percent to $36.86 after reporting fourth-quarter earnings that beat projections. Chief Executive Officer Lawrence Blanford has sought to boost sales with a new Keurig machine that makes milk-based drinks. Blanford also developed an espresso maker with Luigi Lavazza SpA that went on sale in time for the holidays.
Cliffs dropped 1.3 percent to $29.61. The S&P GSCI Index that tracks 24 commodities slid 0.5 percent, falling for the third straight day.
Principal Financial Group Inc. (PFG:US) declined 1.9 percent to $26.80. The U.S. insurer that agreed to buy a Chilean pension provider for $1.5 billion last month gave a 2013 outlook that fell short of some estimates.
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