U.S. stocks rose, sending the Standard & Poor’s 500 Index toward a record high, as Microsoft (MSFT:US) Corp. announced a $40 billion buyback and Federal Reserve policy makers gathered for a two-day policy meeting.
Microsoft increased 0.4 percent, pacing a rally among technology shares, as the world’s largest software maker also raised its quarterly dividend 22 percent. Safeway Inc. rallied 11 percent after adopting a poison-pill to protect against a potential hostile takeover. Mosaic Co. sank 1.2 percent after the fertilizer producer cut its quarterly forecast for potash and phosphate sales and prices.
The S&P 500 added 0.4 percent to 1,704.76 at 4 p.m. in New York. The benchmark index is less than five points below its record high of 1,709.67 reached on Aug. 2. The S&P 500 Equal Weighted Index, which strips out biases related to market value, jumped 0.5 percent to a record. The Dow Jones Industrial Average (INDU) increased 34.95 points, or 0.2 percent, to 15,529.73 today. About 5.1 billion shares changed hands on U.S. exchanges, 14 percent below the three-month average.
“Everybody’s looking forward to tomorrow to see what the Fed’s statement is going to be,” Jerry Braakman, the chief investment officer of First American Trust in Santa Ana, California, said by phone. His firm oversees $1 billion. “With inflation being benign, it doesn’t require a more aggressive tightening than the market would expect.” Large buyback plans are “returning capital to the market, which helps propel it to new highs,” he said.
The Federal Open Market Committee will probably lower its $85 billion of monthly bond purchases by $10 billion, according to the median response of 34 economists in a Bloomberg News survey this month. That’s down from the forecast of a $20 billion reduction in a July survey. The central bank’s stimulus program has helped the S&P 500 rally more than 150 percent from its March 2009 low.
Growing speculation about stimulus cuts has whipsawed stocks since May, when Fed officials first indicated reductions could start this year. The S&P 500 tumbled 5.8 percent from a record on May 21 through June 24. It rebounded 8.7 percent to close at its latest all-time high before slumping as much as 4.6 percent from that level.
The S&P 500 climbed 0.6 percent to a six-week high yesterday after tensions over dealing with Syria’s chemical weapons eased and Lawrence Summers withdrew his bid to be Fed chairman. The former Treasury secretary would tighten policy more than Janet Yellen, the current Fed vice chairman who was his main rival to replace Chairman Ben S. Bernanke, according to a Bloomberg Global Poll of investors, analysts and traders last week.
A Labor Department report today showed the cost of living in the U.S. rose less than forecast in August, a sign it will take time for inflation to reach the Fed’s goal. Central bankers have said they are watching prices to ensure the U.S. doesn’t slip into a long period of diminishing increases, or disinflation, that damages the expansion.
In Germany, Europe’s largest economy, investor confidence increased for a second month in September. Foreign-direct investment in China rose 0.6 percent last month, trailing the median estimate of 12.5 percent growth in a Bloomberg survey.
Nine out of 10 industry groups in the S&P 500 rose, as industrial, consumer-discretionary and technology shares added at least 0.5 percent to pace gains. The Russell 2000 Index advanced 1 percent to an all-time high.
The CBOE Volatility Index (VIX), the gauge of S&P 500 options prices known as the VIX, rose 1 percent to 14.53. The equity volatility gauge has tumbled 15 percent in September after rallying 26 percent in August, the biggest monthly gain since May 2012.
Microsoft increased 0.4 percent to $32.93. The repurchase program, which has no expiration date, replaces another $40 billion buyback plan that was due to lapse at the end of this month, Redmond, Washington-based Microsoft said in a statement. The company’s dividend will rise 22 percent to 28 cents a share.
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. The company has come under pressure from activist investor ValueAct Holdings LP, which pushed Microsoft to return more money to shareholders, according to a person with knowledge of the matter.
The size of the buyback eclipses most repurchase programs, though it’s smaller than the $50 billion plan announced by Apple Inc. in April. Authorized U.S. buybacks have reached a six-year high of $556 billion this year, data from Birinyi Associates Inc. show. Buyback authorizations have increased 58 percent this year compared with the same period in 2012, Birinyi data through Sept. 13 show.
“The news today is indicative of the trend we’ve seen all year, simply because companies are taking the low rates, borrowing some money, taking the cash, putting it to work,” John Canally, investment strategist for LPL Financial LLC in Boston, said in a phone interview. He helps manage $396.7 billion. “Companies have to find a way to be more efficient with their capital. Companies have to be able to generate earnings in a world where you’re getting relatively low growth.”
Safeway (SWY:US) surged 11 percent to $30.99 for the biggest rise in the S&P 500. The grocery store chain adopted a shareholder rights plan to thwart any unfriendly takeovers, saying an undisclosed purchaser has accumulated a “significant amount” of stock.
An S&P 500 index (SPX) of homebuilders advanced 0.4 percent. KB Home rose 0.6 percent to $17.27 and Lennar Corp. increased 0.8 percent to $35.04.
The National Association of Home Builders/Wells Fargo confidence index registered 58 this month, matching August’s revised reading as the strongest since November 2005, a report from the Washington-based group showed today. Readings greater than 50 mean more builders view conditions as good than poor.
US Airways Group Inc. climbed 3.6 percent to $18.72 and Delta Air Lines Inc. advanced 0.7 percent to $23.32. The two airlines were each raised to overweight from neutral at JPMorgan Chase & Co.
Broadcom Corp. gained 2 percent to $27.45. The chipmaker was raised to positive from neutral by Susquehanna Financial Group analyst Christopher Caso.
Mosaic, North America’s second-largest fertilizer producer, lost 1.2 percent to $45. Global fertilizer markets have weakened, in part, because of fertilizer distributors’ cautiousness related to the breakup of Belarusian Potash Co., Mosaic said in a statement. On July 30, OAO Uralkali, the world’s largest potash producer, quit Belarusian Potash, the largest trader of the crop nutrient, because of a dispute with its partner Belaruskali.
Potash Corp. of Saskatchewan Inc. fell 1.7 percent to $32.45 and Agrium Inc. retreated 1.3 percent to $90.69.
Outerwall Inc., owner of the Redbox DVD kiosks, dropped 12 percent to $49.49 after cutting its third-quarter and full-year forecasts because of discounts and shorter rentals.
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