The Standard & Poor’s 500 Index climbed to a record after the Federal Reserve unexpectedly refrained from reducing bond buying, emboldening bulls who have enjoyed a 155 percent rally since stimulus began five years ago.
Utilities rallied the most out of 10 groups in the S&P 500 as investors snapped up high dividend-yielding equities. Newmont Mining Corp. and Barrick Gold Corp., the world’s largest gold miner, jumped at least 8.2 percent to pace gains among commodity companies. An index of homebuilders soared 6 percent to the highest level since July. FedEx Corp. (FDX:US) rose 5 percent after earnings topped estimates.
The S&P 500 jumped 1.2 percent to 1,725.52 at 4 p.m. in New York, erasing an earlier decline of as much as 0.3 percent. The benchmark index climbed above its all-time high of 1,709.67 reached Aug. 2. The Dow Jones Industrial Average rose 147.21 points, or 1 percent, to 15,676.94, also a record. Treasuries and gold rallied while the dollar slid. About 7.4 billion shares changed hands on U.S. exchanges, the most since June 28.
“Everyone was a little stupefied,” Erik Davidson, deputy chief investment officer for Wells Fargo Private Bank, which oversees $170 billion, said by phone. “It’s great to own stocks when we’re at these great levels. When money’s going to continue to be free for a while, it all plays into the valuations.”
Chairman Ben S. Bernanke and his policy making colleagues refrained from paring record accommodation as rising borrowing costs show signs of slowing the four-year expansion. Treasury yields have jumped since May, when Bernanke first outlined a possible timetable for a reduction in the asset purchases.
“The Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases,” the Federal Open Market Committee said today at the conclusion of its two-day meeting in Washington. While “downside risks” to the outlook have diminished, “the tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement.”
The FOMC has been debating how to scale back its $85 billion in monthly purchases of Treasury and mortgage debt aimed at stoking economic growth and reducing unemployment that was 7.3 percent in August. The Fed has held the main interest rate near zero since December 2008 and pushed its balance sheet to a record $3.66 trillion through three rounds of bond buying.
“What they’re basically saying is ‘Look, we’re not tapering yet, but we’re planning to taper pretty soon,’” said Michael Strauss, who helps oversee about $25 billion of assets as chief investment strategist and chief economist at Commonfund Group in Wilton, Connecticut.
Among 64 economists surveyed by Bloomberg News, 33 predicted the Fed would reduce its buying of Treasuries by $5 billion or less, with 31 forecasting a cut of $10 billion or more.
The central bank’s stimulus program has helped the S&P 500 rally 155 percent from its March 2009 low. Speculation over the future of quantitative easing has whipsawed global asset prices since May. 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 record last month, then slumped as much as 4.6 percent before climbing again.
U.S. stocks volume surged after the Fed’s announcement. About 552 million shares traded on all exchanges in the 10 minutes after 2 p.m., compared with 113 million in the preceding 10 minutes, according to data compiled by Bloomberg.
The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options prices known as the VIX (VIX), dropped 6.5 percent to 13.59, the lowest level since Aug. 14. The equity volatility gauge has tumbled 20 percent in September after rallying 26 percent in August, the biggest monthly gain since May 2012.
The Dow Jones Transportation Index jumped 1.5 percent to an all-time high. The Morgan Stanley Cyclical Index, which tracks shares in companies whose earnings are closely tied to economic growth, advanced 1.4 percent to a record. The Nasdaq 100 Index jumped 1.3 percent to its highest level since November 2000.
All 10 main S&P 500 groups advanced at least 0.4 percent. Utilities rallied 3 percent as Treasury yields sank and investors increased purchases of high dividend-yielding shares. Utility stocks pay 4 percent in dividends for the second-biggest payout among S&P 500 (SPX) groups.
An S&P index of 11 homebuilding stocks rallied 6 percent after declining as much as 1.4 percent before the Fed statement. Housing starts rose 0.9 percent to a 891,000 annual rate, following the prior month’s 883,000 pace that was weaker than previously estimated, the data showed. The median estimate of 83 economists surveyed by Bloomberg called for 917,000. Permits dropped 3.8 percent.
D.R. Horton Inc. jumped 6.9 percent to $21.33. Lennar Corp. climbed 6.5 percent to $37.33. PulteGroup Inc. added 5.5 percent to $17.93.
Raw-materials stocks surged 2.3 percent. Newmont Mining, the largest U.S. gold producer, surged 8.2 percent to $30.87 and Barrick Gold jumped 9.7 percent to $20.11. Gold rallied the most since 2009, erasing an earlier decline after the Fed decision as the metal’s attractiveness as a store of value increased.
Cliffs Natural Resources Inc., the largest U.S. iron-ore producer, added 4.7 percent to $23.49.
FedEx rallied (FDX:US) 5 percent to $116.25, the highest level since 2007. The company, regarded as an economic bellwether because of the variety of goods it ships globally, began taking steps last year to reduce costs by $1.7 billion as customers opt for cheaper shipping. FedEx is parking older planes sooner, trimming capacity to Asia and eliminating 3,600 jobs through buyouts.
Adobe Systems Inc. rallied 9.2 percent to $52.58. The largest maker of graphic-design tools said the number of Web subscribers jumped 47 percent in the fiscal third quarter, even as sales and profit declined.
The results are validating the strategy of Chief Executive Officer Shantanu Narayen to push the maker of Photoshop and Illustrator software deeper into Internet services. While that’s crimping near-term revenue and profit, the transition to a suite of online tools called Creative Cloud positions Adobe for more predictable growth in the future, according to Josh Olson, an analyst at Edward Jones & Co.
WellPoint Inc. lost 4.4 percent to $84.39 and Health Net Inc. fell 0.9 percent to $33.34. JPMorgan Chase & Co. analyst Justin Lake said the two companies would be most affected by any delay in the start of open enrollment in new health-care exchanges mandated by the Affordable Care Act.
UnitedHealth Group Inc. lost 1.7 percent to $73.04 for the only decline in the Dow. (INDU)
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