Bloomberg News

U.S. Stocks Rise as Fed to Continue Bond-Buying Program

March 20, 2013

U.S. stocks rose, snapping a three- day decline in the Standard & Poor’s 500 Index, as the Federal Reserve will keep up its bond buying to stimulate the economy and euro-area leaders weighed options for Cyprus.

Homebuilders rallied, as Lennar Corp. (LEN:US) gained 4.8 percent after posting first-quarter earnings (LEN:US) that beat projections. Adobe Systems Inc. climbed 4.2 percent as the software maker reported sales and profit that exceeded analysts’ estimates. FedEx (FDX:US) Corp. slumped 6.9 percent as it lowered its 2013 earnings forecast amid a widening customer shift to cheaper overseas shipments. Oracle Corp. tumbled 7.5 percent after the close of regular trading as sales and profit missed estimates.

The S&P 500 (SPX) advanced 0.7 percent to 1,558.71 at 4 p.m. in New York, trading within seven points of its record reached in 2007. The Dow Jones Industrial Average rose 55.91 points, or 0.4 percent, to 14,511.73. About 5.9 billion shares traded hands on U.S. exchanges today, 6.3 percent below the three-month average.

“The Fed essentially did what’s to be expected, which is to reinforce that the economy still needs support,” Hank Herrmann, Overland Park, Kansas-based chief executive officer of Waddell & Reed Investment Management Co., said in a phone interview. His firm manages $103 billion. “Cyprus just reminds us all the fragility of the economic circumstances in Europe. As you look at the economic data, pretty much everywhere outside the U.S. has been equally unconvincing in terms of any kind of expansion.”

More than three years into the expansion, the central bank led by Chairman Ben S. Bernanke is pressing on with open-ended purchases of Treasury and mortgage securities to boost the pace of growth and heal a labor market still scarred by the deepest recession since the Great Depression.

Bull Market

The S&P 500 has surged 130 percent from a 12-year low in 2009 as companies reported better-than-estimated earnings and the Fed embarked on three rounds of bond purchases to stimulate the economy. The benchmark index rose to within two points of its 2007 record last week while the Dow hit an all-time high.

The Federal Open Market Committee, at the conclusion of a two-day meeting in Washington, left unchanged its statement that it plans to hold its target interest rate near zero as long as unemployment remains above 6.5 percent and inflation is projected to be no more than 2.5 percent.

Policy makers lowered their expectations for the unemployment rate at the end of the year to a range of 7.3 percent to 7.5 percent, from a previous forecast of 7.4 percent to 7.7 percent. The economy will expand 2.3 percent to 2.8 percent this year, they estimate, compared with their earlier forecast of 2.3 percent to 3 percent growth.

Cyprus Rejection

Stocks rallied earlier today as euro-area leaders weighed options for Cyprus. Investors speculated that the European Central Bank will continue to support the country’s banks until next week, after lawmakers in the Mediterranean nation rejected an unprecedented levy on bank deposits.

“In a lot of ways what’s happening in Cyprus only serves to reinforce the Fed’s current policy,” Richard Helm, a portfolio manager at New York-based Cohen & Steers, which oversees more than $40 billion, said in a phone interview. “It puts to bed that the Fed might raise rates sooner than later if you do have issues re-emerging in Europe.”

Nine of 10 S&P 500 groups gained as consumer companies climbed the most, rising at least 1 percent. The Chicago Board Options Exchange Volatility Index (VIX), which measures the cost of using options as insurance against declines in the S&P 500, slid 12 percent to 12.67, after a 27 percent jump over two days. The gauge, known as the VIX, is down 30 percent this year.

Homebuilders Rally

An S&P index of homebuilders climbed 3.7 percent to the highest level since July 2007. Builders are benefiting from revived demand for new homes as the inventory of existing houses for sale shrinks and buyers take advantage of mortgage rates that are close to record lows.

Lennar jumped 4.8 percent to $43.40. The third-biggest U.S. homebuilder by revenue said earnings rose in the fiscal first quarter as prices and sales increased amid the broadening national housing recovery.

Toll Brothers Inc., the largest U.S. luxury-home builder, added 5.9 percent to $36.53. Orders are up 49 percent for the spring, Chief Executive Officer Douglas Yearley said today on Bloomberg Television.

A Bloomberg gauge of U.S. airlines gained 2.3 percent to 49.90, its highest level since February 2008. The airline group IATA said global airlines are on track to post profit 40 percent higher than the previous year, due to strong passenger demand, cargo improvement and industry consolidation in domestic markets.

Airlines Surge

Alaska Air Group Inc. surged 3.4 percent to a record $63, while Delta Air Lines Inc. jumped 3.2 percent to $17.07. U.S. Airways Group added 2.7 percent to $17.23, the highest level since 2007.

Adobe (ADBE:US) gained 4.2 percent to $42.46, as the maker of Photoshop software reported sales for the quarter ended March 1 of $1.01 billion, beating the average analyst estimate of $985.8 million. Profit excluding some items was 35 cents a share, exceeding the average analyst projection of 31 cents.

BlackBerry, formerly Research In Motion Ltd., increased 6.5 percent to $16. Morgan Stanley raised its rating on the Canadian-based phone company to overweight from underweight. The BlackBerry 10 device may boost gross margins and average selling prices, Morgan Stanley analyst Ehud Gelblum said in a note.

Discount Retailers

Family Dollar Stores Inc. rallied 3.8 percent to $60.36, pacing gains among discount retailers. Dollar Tree Inc. advanced 4 percent to $46.16, while Dollar General Corp. rose 4.2 percent to $49.79.

FedEx fell 6.9 percent to $99.13. The operator of the world’s largest cargo airline said profit in the fiscal year through May will be $6 to $6.20 a share, down from an earlier forecast of as much as $6.60. Both the projection and fiscal third-quarter profit trailed analysts estimates.

The company, an economic bellwether because it moves goods as varied as medical supplies and auto parts, is in the midst of a $1.7 billion restructuring to compensate for customers moving away from the fastest, most lucrative deliveries. Starting in April, it will decrease capacity to and from Asia and put low- yielding shipments in less expensive networks, Chief Executive Officer Fred Smith said.

Oracle Corp. tumbled 7.5 percent to $33.10 as of 4:50 p.m. in New York. The company posted fiscal third-quarter sales and profit that missed analysts’ estimates as customers chose competitors’ Web-based software.

Cintas Corp. dropped 4.5 percent to $43.88 after the provider of restroom supplies and entrance mats said it expects full-year earnings per share of $2.50 to $2.54. That compares with a previous forecast of $2.50 to $2.58.

To contact the reporters on this story: Lu Wang in New York at lwang8@bloomberg.net; Sarah Pringle in New York at springle1@bloomberg.net

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


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Companies Mentioned

  • LEN
    (Lennar Corp)
    • $39.27 USD
    • -1.24
    • -3.16%
  • FDX
    (FedEx Corp)
    • $152.5 USD
    • -0.18
    • -0.12%
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