U.S. stocks rose, with the Standard & Poor’s 500 Index erasing earlier losses, after Federal Reserve Bank of Atlanta President Dennis Lockhart said central bank officials are committed to record stimulus measures.
Merck & Co. and Bristol-Myers Squibb Co. jumped at least 3.4 percent as a JPMorgan Chase & Co. analyst said the companies’ experimental cancer drugs show promise. Intel Corp. (INTC:US) surged 4 percent after FBR Capital Markets upgraded (INTC:US) the chipmaker’s shares. Bank of America Corp. and JPMorgan dropped at least 0.2 for the only losses among the 30 companies in the Dow Jones Industrial Average.
The S&P 500 rose 0.6 percent to 1,640.42 at 4 p.m. in New York. The Dow added 138.46 points, or 0.9 percent, to 15,254.03. Almost 7.7 billion shares traded hands on U.S. exchanges today, 23 percent higher than the three-month average.
“There certainly seems to be an acute fixation on the timing of any adjustment to the asset purchase program and I guess I would just encourage everyone to not lose sight of the bigger picture,” Lockhart said today in a Bloomberg Television interview in New York with Michael McKee. “Any adjustment is not a major policy shift. The high level of accommodation will stay in place.”
The S&P 500 declined 1.1 percent last week, with stocks alternating between gains and losses during the four sessions, amid data showing uneven performance in the economy. Federal Open Market Committee members have been weighing economic data to determine whether to expand or taper bond purchases that, along with better-than-expected corporate earnings, have propelled the bull market in U.S. equities into a fifth year and driven the S&P 500 up 142 percent from a 12-year low in 2009.
Data today fueled concern that economic growth could slow, as a report from the Institute for Supply Management showed manufacturing unexpectedly contracted in May at the fastest pace in four years. A separate report from the Commerce Department showed construction spending climbed in April, as private projects rose and public spending slumped.
The S&P 500 initially traded higher on the reports before retreating as much as 0.5 percent. The index pared losses in the early afternoon before charging higher after Lockhart’s remarks.
“Bad news can only be good news for so long for stock prices,” John Lynch, the Charlotte-based regional chief investment officer for Wells Fargo Private Bank, said by telephone. His firm manages $170 billion. “At some point it will impact earnings and market levels. I prefer for this market to be more data-dependent going forward, but I think the market is using this report as another reason to say that one man’s speed bump is another man’s stepping stone. So the market is suddenly not concerned about tapering.”
Lockhart said the ISM report is a ‘good example’ that economic data remains ‘very mixed’ and suggests the economy isn’t strong enough to justify a reduction in bond buying.
“I’m not getting a clear picture of an economy that really is tracking with considerable momentum,” he said. “I’d tend to be a little more cautious, and say maybe August, September or later in the year” would be time to consider slowing purchases, he said.
The Chicago Board Options Exchange Volatility Index, or VIX (VIX), fell 0.1 percent to 16.28. The equity volatility gauge, which moves in the opposite direction as the S&P 500 about 80 percent of the time, has fallen 9.7 percent this year.
All 10 industries in the S&P 500 advanced, with producers of consumer staples and energy rising at least 1 percent.
Health-care companies added 0.6 percent. Merck rose 3.8 percent to $48.45 and Bristol-Myers Squibb added 3.4 percent to $48.11 after New York-based JPMorgan analyst Chris Schott said the two have promising cancer immunotherpaies.
Bristol-Myers is “well in the lead” with a combination of Yervoy, a medicine already on the market, with its experimental immune therapy nivolumab, Schott wrote in a note to investors today. Meanwhile, Merck is rolling forward “the next agent to watch,” he wrote.
Clovis Oncology Inc. soared 104 percent to a record $74.59. The biotechnology company reported positive early results in a trial of its ovarian cancer drug.
A gauge of computer-chip makers gained 1.8 percent, the most among 24 industries in the S&P 500, (SPX) led by Intel.
The chipmaker rallied 4 percent to $25.24, the highest level since August. FBR Capital Markets raised its rating on the stock to the equivalent of buy, saying the world’s largest chipmaker’s development of mobile technology gives it “enough new avenues of growth.”
Financial stocks added 0.2 percent for the smallest gain in among 10 groups in the S&P 500. Bank of America dropped 0.8 percent to $13.55 and JPMorgan slid 0.2 percent to $54.49 for the only drops in the Dow.
An index that tracks homebuilder stocks plunged 1.2 percent, paring a loss of as much as 3.4 percent. Eight of 11 members in the gauge retreated. PulteGroup Inc. slid 1.3 percent to $21.32 and D.R. Horton Inc. slumped 2.4 percent to $23.78.
F5 Networks Inc. (FFIV:US) declined 4.9 percent to $79.16 for the biggest drop in the S&P 500. Morgan Stanley downgraded (FFIV:US) its rating on the maker of data-management equipment to equal weight, similar to a neutral rating, from overweight.
Pandora Inc. slumped 11 percent to $15.22. The biggest online radio provider fell after CNET and the New York Times reported Apple Inc. aims to unveil a competing service as early as next week.
Zynga Inc. tumbled 12 percent to $2.99. The biggest maker of online social games said it will cut 520 jobs, or 18 percent of its staff, and close some offices amid disappointing results from its titles outside the Farmville series.
The S&P 500 gained 2.1 percent in May, pushing its winning streak to seven months of advances, the longest stretch since September 2009. The rally, combined with the index’s strong start to the year, may indicate further gains for stocks in June, according to Sam Stovall, S&P’s New York-based chief equity strategist.
A seven-month winning streak has happened 13 times since 1945 and it has led to advances of 0.4 percent on average in the eighth month as stock prices rose 62 percent of the time, Stovall wrote in a note today. The S&P 500’s advances in January and February may also help, as the benchmark U.S. equity index has returned annual gains in each of the 26 years with such a positive start since World War II. The strong starts to the year have been followed by increases of 1 percent in June compared with its normal flat performance.
“Could sell in May have started in the end of the month, rather than the usual? One could easily infer that from the performance of the last three days,” the strategist wrote, referring to the gauge’s 1.8 percent drop in the month’s closing days. “However, history says, but does not guarantee, that the S&P 500’s performance in June could surprise to the upside.”
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