U.S. stocks rose for the week, sending the Standard & Poor’s 500 Index to a record, as Congress reached a deal to end the budget standoff and speculation grew that the Federal Reserve will maintain monetary stimulus.
Google Inc. led the week’s rally in the S&P 500, surging (GOOG:US) 16 percent and topping $1,000 for the first time after posting better-than-forecast earnings. Morgan Stanley climbed 6.2 percent as profit beat analysts’ estimates amid a gain in equity-trading revenue. FedEx Corp. jumped to a record after announcing its biggest repurchase (FDX:US) program ever. International Business Machines Corp. tumbled 6.7 percent as sales fell for the sixth straight quarter.
The Standard & Poor’s 500 Index rose 2.4 percent to 1,744.50 over the five days, for the biggest weekly gain since July. The Dow Jones Industrial Average advanced 162.54 points, or 1.1 percent, to 15,399.65. The 30-stock gauge is still 1.8 percent below its record reached Sept. 18. The Nasdaq Composite Index jumped 3.2 percent to 3,914.28, the highest level since September 2000.
“It was certainly good news that the budget was extended and the government didn’t default on its debt,” Jack Ablin, who helps oversee $66 billion as chief investment officer at BMO Private Bank, said in a phone interview from Chicago. “Tapering will likely be delayed until at least well into the first quarter. That’s largely what’s fueling equity prices now.”
Stocks surged during the week as Congress moved toward an agreement to end a partial government shutdown that began Oct. 1. President Barack Obama signed a bill to fund the government through Jan. 15 and extend the borrowing authority through Feb. 7. The S&P 500 gained 2.4 percent during the 16-day closure.
The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options prices known as the VIX, climbed 19 percent in the first two trading days, before the biggest single-day decline in U.S. equity volatility since 2011 paced a tumble of 17 percent to 13.04 for the week.
The S&P 500 extended gains on speculation the economic effects of the stalemate will prompt the Fed to delay reducing its $85 billion in monthly bond purchases. The “fiscal shenanigans” undermined the case for tapering, Dallas Fed President Richard Fisher, an opponent to increasing stimulus, said Oct. 17.
The Fed stimulus has helped propel the benchmark index up 158 percent from its March 2009 low. The gauge has surged 22 percent this year and reached its previous record on Sept. 18 when the central bank unexpectedly delayed tapering at its last policy meeting.
“The expectation that the Fed will delay further is being priced into the market now,” Joel Huffman, senior portfolio manager at U.S. Bank Wealth Management, said by phone from Milwaukee. His firm oversees $112 billion in assets.
Fed policy makers won’t scale back the monthly pace of asset buying until their March 18-19 meeting, according to the median of 40 responses by economists in a survey. The budget impasse in Washington reduced growth by 0.3 percentage point this quarter, economists said in the survey.
Equities also rose on the final day of the week as a report showed China’s gross domestic product expanded 7.8 percent last quarter, halting a two-quarter slowdown in growth.
Investors may get a clearer view of the state of the economy in the coming week, as government reports delayed from the shutdown will begin to be released. The September U.S. jobs report will be issued on Oct. 22.
In the absence of economic reports, investors have been watching third-quarter corporate earnings. Of the 100 companies in the S&P 500 that have reported results so far, 70 percent have topped analysts’ estimates while 55 percent have beaten revenue projections, according to data compiled by Bloomberg. Some 146 companies in the benchmark gauge are scheduled to release quarterly results in the coming week.
Profits for companies in the S&P 500 probably increased 2.5 percent during the three months while sales rose 2.2 percent, according to analysts’ estimates compiled by Bloomberg.
“We have been focused on Washington and that has been dictating trading,” Jonathan Corpina, senior managing partner at Meridian Equity Partners, said from the floor of the New York Stock Exchange on Oct. 17. “We have to get back to basics and focus on earnings season.”
All 10 main industries in the S&P 500 rose as telephone and financial companies increased more than 2.9 percent to pace gains.
Banks advanced as three-quarters of the 24 financial companies that have posted earnings so far topped analysts’ estimates.
Morgan Stanley rose 6.2 percent to $29.69, the highest since February 2011, as equity-trading revenue (MS:US) jumped the most among the bank’s biggest peers and profitability at its brokerage unit, the world’s biggest, increased.
Bank of America Corp. gained (BAC:US) 3.1 percent to $14.63. The second-largest U.S. lender said lower legal expenses and loan losses amid growing consumer and business banking profit helped earnings rebound.
American Express Co., the biggest credit-card issuer by purchases, advanced 6.8 percent to $80.52. Third-quarter profit beat analysts’ estimates (AXP:US) as customer spending climbed.
Newmont Mining Corp. gained 5.1 percent to $26.92 as gold prices rose. The precious metal rallied 3.7 percent amid speculation that the Fed will hold off on scaling back monetary stimulus.
General Electric Co. climbed (GE:US) 4.7 percent to $25.55 after the company told investors that its industrial business is poised to meet a goal for profit-margin growth on demand for jet engines and locomotives.
The Dow Jones Transportation Average climbed 2.7 percent to a record for the week as 18 of its 20 members advanced.
FedEx surged 9.1 percent to $126.44, the highest close ever, after authorizing its biggest share repurchase plan. The world’s largest cargo airline approved a buyback of 32 million shares, or about 10 percent of its stock outstanding.
Google climbed (GOOG:US) 16 percent to a record close of $1,011.41, amid optimism about new advertising for wireless devices and online video. The world’s largest search-engine company said profit grew as the number of promotions sold on mobile, video and other services made up for shrinking advertising prices.
EBay Inc. dropped 4 percent to $52.20 after the operator of the largest online marketplace issued sales and profit forecasts that missed estimates ahead of the key holiday shopping season, which falls in what is typically the company’s biggest quarter (EBAY:US).
IBM slid 6.7 percent to $173.78 after the largest computer-services provider posted its sixth-straight quarter of falling sales and its hardware business posted a loss. IBM’s shift to higher-margin software and services has failed to make up for a slump in sales of servers and other computer hardware.
UnitedHealth Group Inc. dropped 7.4 percent to $68.76, for the biggest weekly drop in more than two years, after the largest U.S. health insurer reported third-quarter sales below analysts’ estimates while declining to raise its profit projections.
Stanley Black & Decker Inc. lost 15 percent, the most since November 2008, to $77.16 after third-quarter adjusted earnings fell short of estimates. The toolmaker also reduced its full-year profit forecast (SWK:US) in part because of uncertainty created by the government shutdown.
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