Bloomberg News

U.S. Stocks Advance, Led by Rally in Health-Care Shares

February 24, 2014

U.S. Stocks Climb to Record as Energy Shares, Pfizer Advance

Trader Gregory Rowe, center, works at the post of specialist Joseph Mastrolia, left, on the floor of the New York Stock Exchange on Feb. 21, 2014. Photographer: Richard Drew/AP Photo

U.S. stocks rose, briefly sending the Standard & Poor’s 500 Index (SPX) to a record, after health-care shares jumped on a smaller-than-forecast cut in Medicare rates and EBay Inc. climbed as Carl Icahn urged the spinoff of PayPal.

Humana rallied 11 percent for the biggest gain in the S&P 500 after saying the rate cut in 2015 for Medicare Advantage patients will be less than an earlier estimate. EBay climbed 3.1 percent as Icahn criticized the online marketplace for “lapses” in corporate governance and asked shareholders to vote in favor of the split. Oil producers led gains among 10 main industries in the S&P 500 with a 1.5 percent advance as crude prices traded above $100 a barrel.

The S&P 500 increased 0.6 percent to 1,847.61 at 4 p.m. in New York. Earlier, it reached 1,858.71 to surpass the previous closing high from Jan. 15. The U.S. equity benchmark is little changed for the year. The Dow Jones Industrial Average added 103.84 points, or 0.6 percent, to 16,207.14 today.

“We’re just seeing a shift in mentality,” Mark Freeman, who oversees about $18.9 billion as chief investment officer at Westwood Holdings Group Inc. in Dallas, said by phone. “The market is really willing to focus on the positives and dismiss the negatives. In that environment, the market tends to drift higher.”

Investors are returning to U.S. stocks after withdrawing $35.8 billion from equity exchange-traded funds in the first six weeks of the year, data compiled by Bloomberg show. The ETFs have since taken in almost $18 billion. Deposits reached a record $139 billion in 2013 as the S&P 500 jumped 30 percent for the best annual gain since 1997.

Stocks Rally

The S&P 500 has rebounded 6.1 percent since Feb. 3, following losses spurred by investor concern about continued cuts in the Fed’s monthly asset purchases and a rout in emerging markets.

Warren Buffett, the billionaire chairman of Berkshire Hathaway Inc., cited a farm he’s owned since 1986 to caution individuals against frequent buying and selling of stocks. Investors should treat their equity holdings like real estate purchases, focusing on the potential for profits over time rather than short-term price fluctuations, Buffett, 83, wrote in an excerpt from his annual letter published on the website of Fortune magazine today.

Liquidity Curse

“Those people who can sit quietly for decades when they own a farm or apartment house too often become frenetic when they are exposed to a stream of stock quotations,” Buffett said. “For these investors, liquidity is transformed from the unqualified benefit it should be to a curse.”

Fed Chair Janet Yellen said this month that the economy has strengthened enough to withstand stimulus cuts, adding that only a notable change to the outlook would prompt the central bank to slow the pace of tapering. Yellen, in her first global forum as Fed chair, won praise at the Group of 20 nations meeting over the weekend for helping smooth emerging-market concerns as the U.S. tapers monetary stimulus.

Three rounds of stimulus have helped push the S&P 500 173 percent higher from a 12-year low in 2009. The bull market, approaching its sixth year in March, is less than a month away from taking out the 1982-1987 period as the sixth longest of all time, according to Bespoke Investment Group.

Real Economy

“U.S. equities can go higher in 2014,” Drew Wilson, an investment analyst with Fenimore Asset Management in Cobleskill, New York, said in a phone interview. The firm oversees about $1.7 billion. “Taper is not going to affect the real economy. I don’t know what it’ll do psychologically. I believe the fundamental recovery is real and will be strong enough to overcome the psychology.”

Investors have dismissed worse-than-forecast U.S. economic data over the past two weeks, speculating that severe winter weather explains the weakness in reports such as housing and hiring. The Bloomberg ECO U.S. Surprise Index, which measures how much recent data has beaten or missed economists’ estimates, fell to minus 0.429 on Feb. 21, the lowest since August 2011.

The Commerce Department publishes its revised estimate for fourth-quarter growth on Feb. 28. The report will probably show that gross domestic product expanded 2.5 percent at an annualized pace, less than the government had forecast, according to a Bloomberg survey of economists.

The Chicago Board Options Exchange Volatility Index (VIX) dropped for a third day, sliding 3.1 percent today to 14.23. The gauge of S&P 500 options known as the VIX is up 3.7 percent this year.

Humana Gains

Energy, industrial, financial and health-care companies rose the most among 10 main industries in the S&P 500, climbing more than 0.7 percent. Trading in S&P 500 stocks was 6 percent above the 30-day average during this time of the day.

Humana (HUM:US) jumped 11 percent to $113.69. Health insurers participating in the program for elderly Americans face a payment cut of about 3.55 percent next year, the U.S. government said on Feb. 21. Humana said it had expected a decline of 6 percent to 7 percent.

UnitedHealth Group Inc., the largest U.S. health insurer, climbed 3 percent to $76.01 for the biggest advance in the Dow. Aetna Inc. added 2 percent to $71.80.

Pfizer Inc. climbed 1.7 percent to $31.99. The world’s biggest drugmaker said its community-acquired pneumonia immunization trial in adults at 65 or older showed positive results.

EBay Rally

EBay gained 3.1 percent to $56.30. In a letter to investors posted online, Icahn singled out two directors, Marc Andreessen and Intuit Inc. co-founder Scott Cook, for directly competing with EBay. Icahn reiterated his call for a non-binding vote on the separation of online-payments unit PayPal after Chief Executive Officer John Donahoe said the company should stay together, citing how a unified entity helps fund PayPal’s expansion into areas such as mobile.

Energy producers rallied as West Texas Intermediate rose on speculation that supplies at Cushing, Oklahoma, declined. Exxon Mobil Corp. climbed 1.5 percent to $96.44 while Chevron Corp. gained 1.3 percent to $114.15.

Chesapeake Energy Corp. (CHK:US) climbed 2.7 percent to $27.29 after the second-largest U.S. natural gas producer said it plans to either sell or spin off its oilfield-services unit (CHK:US). About 35 percent of the unit’s drilling rigs work for companies other than its parent, according to a statement.

Jos. A. Bank Clothiers Inc. rallied 9.1 percent to $60.04. Men’s Wearhouse Inc. raised its offer for the company 10 percent to $63.50 a share. The bid would increase to $65 if Jos. A. Bank ended the Eddie Bauer deal and let Men’s Wearhouse conduct limited due diligence.

Men’s Wearhouse climbed 7.5 percent to $48.51.

To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net

To contact the editor responsible for this story: Cecile Vannucci at cvannucci1@bloomberg.net


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Companies Mentioned

  • HUM
    (Humana Inc)
    • $145.07 USD
    • 0.69
    • 0.48%
  • CHK
    (Chesapeake Energy Corp)
    • $19.71 USD
    • -0.13
    • -0.66%
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