U.S. stocks jumped, sending the Standard & Poor’s 500 Index above its record closing level, as Federal Reserve Chairman Ben S. Bernanke backed sustained monetary stimulus.
All 10 groups in the S&P 500 rallied, with technology and raw-material shares posting the biggest gains. Freeport-McMoRan Copper & Gold Inc. and Newmont Mining Corp. led gold producers higher as the precious metal’s price soared. Advanced Micro Devices Inc. (AMD:US) rose 10 percent as analysts recommended that investors buy the shares. An S&P gauge of homebuilders added 6.2 percent as all 11 members advanced.
The S&P 500 gained 1 percent to 1,669.23 at 1:41 p.m. in New York. The benchmark gauge climbed above the all-time closing record of 1,669.16 reached May 21, erasing losses since Bernanke first suggested the Fed might curb stimulus this year. The Dow Jones Industrial Average jumped 133.08 points, or 0.9 percent, to 15,424.74 today. Trading in S&P 500 stocks was in line with the 30-day average at this time of day.
“The story in stocks for this year is about confidence replacing uncertainty and anxiety,” Hank Smith, who oversees $7 billion as chief investment officer at Radnor, Pennsylvania-based Haverford Trust Co., said by telephone. “It’s really more about an improvement in sentiment. That’s being a big driver for equity returns and we are still a long ways away from worrying about there being too much optimism or exuberance.”
Central bank stimulus has helped fuel a rally in stocks worldwide, with the benchmark U.S. index surging 147 percent from its March 2009 low. The S&P 500 has advanced for six straight days, the longest winning streak since March 11.
Bernanke said yesterday that “highly accommodative monetary policy for the foreseeable future” was needed in the world’s largest economy. The Fed chairman spoke just three hours after the central bank released minutes of the June 18-19 gathering showing that about half of the 19 participants in the Federal Open Market Committee wanted to halt $85 billion in monthly bond purchases by year end.
At the same time, the minutes showed many Fed officials wanted to see more signs employment is improving before backing a trim to bond purchases known as quantitative easing.
“Everybody’s hanging on the Fed’s every word,” Malcolm Polley, who manages $1.1 billion as chief investment officer at Stewart Capital Advisors LLC in Indiana, Pennsylvania, said by telephone. “Even though Bernanke’s comments after the last FOMC meeting really weren’t hawkish, the market has wanted more clarity in terms of what he meant. Bernanke was as clear as one can be, saying ‘We’re not going to step on the brakes. We’re just going to let up on the accelerator.’ The more dovish comments he made yesterday clarifies that position.”
The S&P 500 sank as much as 5.8 percent after reaching a record May 21, the day before Bernanke said the central bank may start paring stimulus efforts as soon as September if the economy improves in line with its forecasts. The equity gauge has rebounded 6.1 percent from a June 24 bottom as economic data from hiring to housing tempered concern over the possible scaling back of Fed stimulus.
Data today showed the number of Americans filing for unemployment benefits unexpectedly increased to a two-month high. Swings in jobless applications are typical in July as auto plants close for annual retooling. The Labor Department last week released its jobs report for the month of June, showing the economy added 195,000 jobs, exceeding estimates, while the unemployment rate was unchanged at 7.6 percent.
“Fed policy has been helpful no question, but the driver of equity returns off of the March 2009 bottom has been fundamentals, not Fed policy,” Haverford’s Smith said. “You’ve had over the past four years tremendous earnings growth confirmed by dividend growth. That has been the primary driver of the market but yet Fed policy has been helpful.”
Investors are watched earnings results this week. Profit at companies listed on the S&P 500 rose 1.8 percent last quarter, down from a projection of 8.7 percent six months ago, according to analyst estimates compiled by Bloomberg. Lower expectations helped about 73 percent of the companies in the benchmark measure exceed forecasts by an average of 5.1 percent for the first three months of the year, Bloomberg data show.
The Chicago Board Options Exchange Volatility Index, or VIX, slid 2.2 percent to 13.90. The equity volatility gauge, which moves in the opposite direction as the S&P 500 about 80 percent of the time, has declined six straight days, the longest streak of losses since January. The index reached a six-month high on June 20 and has fallen 32 percent since.
Technology, consumer-staples and raw-material companies rallied more than 1.2 percent for the biggest gains out of 10 S&P 500 groups. Investors bought shares of stocks most tied to economic growth, sending the Morgan Stanley Cyclical Index (CYC) up 1.5 percent.
Freeport advanced 4.2 percent to $28.42. Gold futures rallied 2.6 percent for a fourth day of gains. Newmont Mining added 4.3 percent to $27.74 after reaffirming its forecast for gold and copper production this year in a statement late yesterday.
AMD (AMD) added 10 percent to $4.39 for the largest advance in the S&P 500. Bank of America’s Merrill Lynch unit and Canaccord Genuity Ltd. raised their ratings on the maker of processors for personal computers to buy from underperform, and to buy from hold, respectively. Canaccord said increased production of games consoles may boost demand for its hardware in the third quarter.
The S&P Supercomposite Homebuilding Index rallied 6.2 percent. D.R. Horton Inc. surged 7.3 percent to $22.59, while Lennar Corp. (LEN) jumped 7.4 percent to $37.13.
Bank shares were the only group to fall out of 24 S&P 500 industries, losing 0.6 percent. JPMorgan Chase & Co. (JPM) increased 0.1 percent to $54.86, while Wells Fargo & Co. slipped 0.3 percent to $41.94. The two lenders report second-quarter results tomorrow, the first of the six largest U.S. banks.
Bernanke’s plan for paring central bank bond purchases are estimated to squeeze profit and erode capital through 2014 at the six largest U.S. lenders, overshadowing second-quarter earnings that are projected to rise by an average of 20 percent.
Market gyrations that began mid-quarter damped earnings at firms including Goldman Sachs Group Inc. and Bank of America Corp., analysts’ estimates show. Trading and home-lending that started strong slumped after Bernanke indicated May 22 that the Fed could slow monthly bond purchases.
Hewlett-Packard Co. (HPQ) increased 2.2 percent to $26.51 after a report showed its sales of personal computers in the U.S. fell less than 1 percent in the second quarter. Sales for all PC makers gained 8.5 percent from the previous quarter and posted their smallest year-on-year drop of the last seven quarters, according to market researcher Gartner Inc.
Celgene Corp. rose 6.9 percent to a record $133.70 after its Revlimid cancer drug met the goal of a study aimed at showing the medicine could be an initial treatment for patients with multiple myeloma.
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