U.S. equities rose a third day as Microsoft Corp. (MSFT:US)’s plan to buy back $40 billion in stock fueled optimism that more companies will return cash to shareholders, while Treasuries climbed before a Federal Reserve decision tomorrow. European and Asian shares retreated and oil fell.
The Standard & Poor’s 500 Index added 0.4 percent to 1,704.76 at 4 p.m. in New York, within five points of its Aug. 2 record. The Shanghai Composite Index slid 2.1 percent, the most in two months, as foreign direct investment in China trailed estimates. Ten-year Treasuries rose for a fifth straight day, the longest rally in almost a year. The euro strengthened after German investor confidence increased. The S&P GSCI gauge of 24 commodities declined 1.2 percent as oil lost more than 1 percent and coffee sank to a four-year low.
Microsoft paced a rally that sent technology shares to the biggest gain among 10 industries in the S&P 500 after also announcing plans to boost its dividend by 22 percent. The Federal Open Market Committee meets today and tomorrow, when members are forecast to cut monthly bond buying by $10 billion to $75 billion, according to a Bloomberg survey of economists. The U.S. cost of living rose less than forecast in August, a sign it will take time for inflation to reach the Fed’s goal.
Large buybacks show “continued confidence by managers,” Jerry Braakman, the chief investment officer of First American Trust in Santa Ana, California, said in a phone interview. His firm oversees $1 billion. “With inflation being benign it doesn’t require a more aggressive tightening than the market would expect. This simulative environment will continue. If they have to dial it back, they’ll do it moderately to continue supporting the economy going forward.”
The S&P 500 Equal Weighted Index, which strips out biases related to market value, jumped 0.5 percent to a record today. The Russell 2000 Index, whose companies have a median market value of about $648 million, also climbed to an all-time high.
The S&P 500 climbed 0.6 percent yesterday, pushing the gauge of U.S. shares to a six-week high. Alcoa Inc., American Express Co., Intel Corp. and General Electric Co. rallied at least 1.3 percent to lead gains in the Dow Jones Industrial Average, with technology, consumer-discretionary and industrial shares leading an advance among nine of the 10 main industries in the S&P 500.
Safeway Inc. jumped 11 percent after the grocery chain adopted a shareholder rights plan to thwart any unfriendly takeovers, saying an investor accumulated a “significant amount” of common stock. Mosaic Co. (MOS:US) slipped 1.2 percent today after North America’s second-largest fertilizer producer cut its quarterly forecast for potash and phosphate sales and prices.
Microsoft increased 0.4 percent after earlier rising as much as 2 percent. After struggling to keep up with rivals in the smartphone and tablet markets, Microsoft is retooling its strategy and seeking a new chief executive officer. Steve Ballmer, who has run the company since 2000, announced plans last month to retire when a replacement is found. The company also agreed to buy Nokia Oyj’s phone business for $7.2 billion, aiming to bolster its position in mobile devices.
Authorized U.S. buybacks have reached a six-year high of $556 billion this year, data from Birinyi Associates Inc. show.
The Stoxx Europe 600 Index fell 0.5 percent after yesterday climbing to the highest level in more than five years. The U.K. government sold a 3.2 billion-pound ($5.1 billion) stake in Lloyds Banking Group Plc, while Schaeffler AG and its holding company raised about 950 million euros ($1.3 billion) selling 4 percent in Continental AG. Lloyds lost 3.5 percent and Continental, Europe’s second-largest auto-parts maker, fell 3.1 percent.
“After the big move we saw yesterday, it only makes sense that we see a pull-back today and that investors see it as a good time to sell,” said Dirk Thiels, who helps oversee the equivalent of $87 billion as head of investment management at KBC Asset Management NV in Brussels.
The MSCI Emerging Markets Index was little changed near a three-month high. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong slid 0.5 percent. Russia’s Micex increased 0.2 percent and South Korea’s Kospi retreated 0.4 percent while Brazil’s Ibovespa added 0.5 percent.
Foreign-direct investment in China rose 0.6 percent last month, compared with the median estimate of 12.5 percent growth in a Bloomberg survey.
“We’ve gone past the sweet spot in equities and the easy gains are behind us,” Nader Naeimi, the Sydney-based head of dynamic asset allocation at AMP Capital Investors Ltd., which manages more than $130 billion, said by phone. “The task for the Federal Reserve is still a hard one.”
The yield on 10-year Treasuries declined two basis points to 2.84 percent. The FOMC will probably cut monthly purchases of Treasuries to $35 billion from $45 billion and keep mortgage-bond buying at $40 billion at the meeting starting today, according to a Bloomberg News survey of economists earlier this month.
“Nobody’s going to make a major commitment until we get some color out of the Fed,” Eric Green, director of research and fund manager at Penn Capital Management, said by phone. The Philadelphia-based firm oversees about $7 billion. “Today is a throw-away day. Aside from company specific news, the overall market is probably just sitting, waiting to get some direction. This meeting will set the tone for the next few months most likely.”
A report today showed the cost of living in the U.S. rose less than forecast in August, with the consumer-price index increasing 0.1 percent, the least in three months, Labor Department figures showed. The median forecast in a Bloomberg survey of economists called for a 0.2 percent gain.
Bonds rose yesterday after Lawrence Summers withdrew as a candidate for the position of Fed chairman. The former Treasury secretary would have tightened central bank policy more than Fed Vice Chairman Janet Yellen, who was his main rival to replace Chairman Ben S. Bernanke, according to a Bloomberg Global Poll conducted last week. Bernanke’s term ends on Jan. 31.
The euro rose 0.2 percent to 132.41 yen and was 0.2 percent stronger at $1.3354.
The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, rose to 49.6 in September from 42 in August. Economists predicted a reading of 45, according to the median of 37 estimates in a Bloomberg News survey.
The S&P GSCI fell for the third day, the longest streak since Aug. 21, as West Texas Intermediate oil dropped 1.1 percent to $105.42 a barrel, a one-month low, as a U.S. agreement with Russia to eliminate Syria’s chemical weapons reduced supply risk.
U.S. Secretary of State John Kerry joined French and U.K. diplomats in calling for a United Nations resolution to eliminate Syria’s chemical arsenal, with the goal of forcing President Bashar al-Assad from power. Libya restored about 25 percent of its crude output following talks between the government and striking workers, while oil-export terminals in Mexico reopened as Ingrid weakened from a hurricane to a tropical depression.
Gold for December delivery slipped 0.6 percent to $1,309.40 an ounce, the fifth drop in six sessions.
Coffee sank to the lowest level in more than four years as surging stockpiles signal ample supply in the U.S., the world’s biggest consumer and importer. Arabica coffee for December dropped 3.6 percent to settle at $1.1495 a pound. Orange juice fell the most in 2013. Cocoa and sugar slid, while cotton rose.
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