U.S. stocks rose, following the Dow Jones Industrial Average’s biggest drop in four weeks, as weaker-than-expected data on economic growth and jobless claims boosted speculation the Federal Reserve will maintain stimulus.
Financial companies gained the most out of 10 groups in the Standard & Poor’s 500 Index, increasing 1.1 percent. Bank of America Corp. jumped 2.6 percent for the biggest advance in the Dow. NV Energy Inc. (NVE) surged 23 percent after Warren Buffett’s MidAmerican Energy Holdings Co. said it will pay $5.6 billion for Nevada’s biggest utility. Clearwire Corp. rallied 29 percent after Dish Network Corp. (DISH:US) raised its bid for the company.
The S&P 500 advanced 0.4 percent to 1,654.41 in New York. The Dow added 21.73 points, or 0.1 percent, to 15,324.53. About 6.5 billion shares traded hands on U.S. exchanges today, or 3.7 percent more than the three-month average.
“The take away from today’s statistics is that there’s going to continue to be a bias to keep QE in place,” Matthew Kaufler, fund manager at Federated Investors Inc. in Rochester New York, said by telephone. The firm manages about $380 billion. “As long as that perception exists, it’ll be positive for financial assets.”
The S&P 500 sank 1.1 percent last week as Fed Chairman Ben S. Bernanke said the central bank could reduce monetary stimulus, known as quantitative easing, if officials see signs of sustained improvement in growth. Data earlier this week showed consumer confidence climbed to the highest level since 2008 and house prices jumped the most in seven years.
U.S. equities advanced today after data that missed estimates fueled speculation the Fed will continue to support the world’s largest economy through bond buying. Gross domestic product expanded at a 2.4 percent annualized rate in the first quarter, less than the estimated 2.5 percent. Separate data showed more Americans filed claims for unemployment insurance payments last week, and an index of pending home sales rose less than forecast in April.
“Bernanke was misunderstood,” Patrick Spencer, head of U.S. equity sales at Robert W. Baird & Co. in London, said in an interview today. “Though his testimony implied that if the Fed curtails bond purchases too soon a premature exit would hurt the stock market, he said he’ll only start to cut that back if economic growth is sustainable. You’ve only had a few indicators that have shown that so far. The jury is still out.”
The S&P 500 has advanced 3.6 percent so far in May, poised for a seventh month of gains. That’s the longest winning streak since September 2009. The gauge has surged 145 percent since March 2009, driven by better-than-estimated corporate earnings and three rounds of bond purchases from the Federal Reserve.
Equity futures retreated as much as 0.4 percent earlier today as Japan’s Topix (TPX) sank 3.8 percent to extend losses from its May 22 high to more than 10 percent, the threshold for a correction. Japanese stock-index futures climbed following a report that the nation’s public pension fund may boost its equities holdings.
“If you see that pullback continue, that’s a risk to the U.S. market,” Gary Flam, who helps oversee $7 billion at Bel Air Investment Advisors LLC in Los Angeles, said of Japan’s stock market by phone. “It’s been a tailwind over the last six months. Right now, the equity markets in the U.S. have been ignoring it, but if it continues, it’s a risk near term.”
The Chicago Board Options Exchange Volatility Index, or VIX (VIX), slumped 2 percent to 14.53. The equity volatility gauge, which moves in the opposite direction as the S&P 500 about 80 percent of the time, is down 19 percent for the year after rising 12 percent last week.
Six out of 10 groups in the S&P 500 advanced today. The KBW Bank Index jumped 1.4 percent as all 24 lenders in the gauge rose. The measure closed at its highest level since October 2008. Bank of America climbed 2.6 percent to $13.83, its highest in more than two years.
Utility stocks increased 0.2 percent. The gain today snapped a five-day streak of losses spurred by rising Treasury yields that made dividends paid by utility companies less attractive.
NV Energy (NVE) rallied 23 percent to $23.62. MidAmerican Energy, a subsidiary of Buffett’s Berkshire Hathaway Inc., agreed to buy the Las Vegas-based energy producer for $23.75 a share in cash. The deal would make MidAmerican the largest U.S. utility by customer accounts.
Clearwire jumped 29 percent to $4.50 as Dish Network (DISH) raised its takeover bid for the company to $4.40 a share in cash. The satellite-TV provider had previously offered $3.30 a share for Clearwire, leading Sprint Nextel Corp. to raise its bid to $3.40 last week.
EMC Corp. gained 5.4 percent to $24.93. The world’s biggest maker of storage computers said it plans to buy back $6 billion of its own shares, six times more than the company had initially authorized earlier this year. EMC also said it will pay investors a quarterly dividend of 10 cents a share in July.
First Solar Inc. (FSLR) jumped 6.6 percent, the most in the S&P 500, to $55.15. The largest U.S. solar manufacturer by shipments was lifted to a buy from neutral at Goldman Sachs Group Inc., which cited visibility on near-term earnings and a project backlog. MEMC Electronic Materials Inc. added 9.6 percent to $8.35. The second-biggest U.S. supplier of polysilicon was added to Goldman’s conviction buy list.
Alcoa Inc. (AA:US) slipped 1.1 percent to $8.49. Moody’s Investors Service lowered its rating on the debt of the largest U.S. aluminum producer to Ba1 from Baa3, after the price of the metal has declined as global production exceeds demand.
Baker Hughes Inc. (BHI) slumped 1.9 percent to $46.50, while Halliburton Co. slid 2.2 percent to $42.63. Morgan Stanley cut its rating on the global oil services drilling and equipment sector to in-line from attractive, citing a slowdown in key revenue drivers. Both companies were lowered to underweight from equal-weight.
Big Lots Inc. sank 9 percent to $34.93. The discount retailer cut its forecast for annual earnings from continuing operations to no more than $3.12 a share. That compares to an earlier projection of as much as $3.25 and falls short of analysts’ average estimate of $3.16.
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