Bloomberg News

S&P 500 Extends Record as Global Equities Rally on Fed

June 19, 2014

The Standard & Poor’s 500 Index extended a record and global equities rallied as the Federal Reserve’s policy statement fueled optimism that the economic recovery will accelerate.

BlackBerry Ltd. jumped 9.7 percent after reporting a narrower loss than analysts had projected. Kroger Co. advanced 5.1 percent as it increased its full-year profit forecast. Coach Inc. slumped 8.9 percent after the largest U.S. luxury handbag maker forecast a prolonged slump in sales at its North American stores. KBR Inc. dropped 7.1 percent after saying it will undergo a “strategic review” of its business.

The S&P 500 rose 0.1 percent to a record 1,959.48 at 4 p.m. in New York. The benchmark equity index advanced for a fifth straight day, the longest streak since April. The Dow Jones Industrial Average increased 14.84 points, or 0.1 percent, to 16,921.46. The Nasdaq Composite Index slid 0.1 percent after reaching a 14-year high yesterday. The MSCI All-Country World Index added 0.6 percent today to a record.

“Yellen is a super dove,” Lex Van Dam, a fund manager at Hampstead Capital LLP in London, said in an interview. “There remain very few alternatives for your cash other than putting it in stocks. The trend remains up in markets. I believe in the Fed. The economy has recovered on financial engineering.”

Stocks rallied yesterday after Fed Chair Janet Yellen said accommodative monetary policy, rising property and equity prices and the improving global economy should lead to above-trend growth. Yellen emphasized the need to put more Americans back to work and downplayed concerns about asset-price bubbles and incipient inflation.

Fed Stimulus

The central bank reduced its bond purchases by $10 billion for a fifth consecutive meeting, to $35 billion, leaving it on schedule to end the program this year. The stimulus has helped the S&P 500 rally 190 percent from its bear-market low in March 2009.

The benchmark gauge has climbed 7.9 percent since a low on April 11 as data showed the economy is recovering from the impact of extreme weather earlier this year. The S&P 500 (SPX) is trading at 16.6 times the projected earnings of its members, up from 15.5 times at the beginning of the year.

The index of U.S. leading indicators rose in May for the fourth straight month, according to data released today, showing the economy will gain momentum following the slowdown at the start of 2014. Fewer Americans filed applications for unemployment benefits last week, a sign of steady progress in the labor market.

The Fed Bank of Philadelphia’s factory index increased to 17.8 in June, topping economists’ forecasts. Readings greater than zero signal growth in the area covering eastern Pennsylvania, southern New Jersey and Delaware.

Iraq Conflict

Equities briefly extended an earlier loss after President Barack Obama said he’s sending as many as 300 U.S. military advisers to assist the Iraqi army battle an insurgency and is prepared to take additional “targeted, precise” action if necessary. The S&P 500 dropped 0.7 percent last week as violence in Iraq sent the price of Brent crude to the highest level in 11 months.

The Chicago Board Options Exchange Volatility Index, known as the VIX, added 0.1 percent to 10.62 today, after closing at the lowest level since 2007 yesterday. The measure of volatility has dropped 23 percent this year, and is within two points of its record low reached in 1993.

About 5.8 billion shares changed hands on U.S. exchanges, 5.6 percent below the three-month average. Six out of 10 main industries in the S&P 500 rose, with utility shares advancing 0.9 percent for the best performance. Technology and raw-material companies led declines.

BlackBerry Turnaround

BlackBerry jumped 9.7 percent to $9.09. The smartphone maker reported a narrower loss than analysts estimated as cost cuts and asset sales helped drive the company’s turnaround under a new boss. Chief Executive Officer John Chen said he’s stabilized the struggling company enough to now set his sights on growth.

Kroger rose 5.1 percent to $49.66 for the largest advance in the S&P 500. The U.S.’s largest supermarket chain said profit this year will be more than it previously forecast, helped by increased sales from its purchase of Harris Teeter.

Red Hat Inc. (RHT:US) gained 3.8 percent to $55.11. The largest seller of Linux operating-system software said annual earnings will be as much as $1.79 billion in fiscal 2015, higher than the $1.73 billion to $1.76 billion it had forecast in March. The company’s first-quarter adjusted profit (RHT:US) of 34 cents a share and sales of $424 million beat analyst estimates.

Starbucks Climbs

Starbucks Corp. rose 2.2 percent to $77.23. UBS AG boosted its rating on the world’s largest coffee-shop chain to buy from neutral and its stock-price estimate to $87 from $80. The brokerage said Starbucks is one of the companies with the best long-term growth opportunities among consumer multinationals.

Monster Beverage Corp. (MNST:US) advanced 1.9 percent to $72.75. Wells Fargo & Co. started covering the stock, giving it an outperform rating (MNST:US), the equivalent of a buy. BTIG also initiated coverage of the shares with a buy.

Markit Ltd. jumped in its trading debut after raising $1.3 billion in a larger-than-planned initial public offering. The company, whose price data supports much of the global derivatives and bond markets, rose 11 percent to $26.70, after the IPO was priced at $24 a share.

American Apparel Inc. increased 6.7 percent to 68 cents. The casual clothing maker replaced its chief executive officer, Dov Charney, who has faced accusations of sexual harassment, after an investigation into misconduct at the company he created.

Coach Sales

Coach slumped 8.9 percent, the most in the S&P 500, to $35.69 as apparel companies dropped. Sales at North American stores open at least a year will fall at a mid- to high-teens percentage rate in the year through June 2015, Coach executives said today on a conference call.

Michael Kors Holdings Ltd. lost 1.6 percent to $89.36.

KBR, a construction contractor for the energy industry, dropped 7.1 percent to $24.46. The company said it will undergo a “strategic review” of its business after reporting losses in a Canadian assembly plant and on two U.S. construction projects.

Pier 1 Imports Inc. fell 13 percent to $15.86, the lowest level since July 2012. The home retailer reduced its full-year earnings outlook after first-quarter earnings and sales missed analyst estimates.

To contact the reporter on this story: Jacob Barach in New York at jbarach1@bloomberg.net

To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net Jeff Sutherland


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Companies Mentioned

  • RHT
    (Red Hat Inc)
    • $60.66 USD
    • -0.42
    • -0.69%
  • MNST
    (Monster Beverage Corp)
    • $90.44 USD
    • -0.38
    • -0.42%
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