Bloomberg News

U.S. Stocks Rise on Ukraine Talks as Dollar General Gains

August 18, 2014

U.S. Stocks Advance on Ukraine Talks as Dollar General Rallies

Traders work on the floor of the New York Stock Exchange on Aug. 13, 2014. Photographer: Spencer Platt/Getty Images

U.S. stocks rose, with the Nasdaq Composite Index climbing to a 14-year high, as tensions eased over global conflicts. Dollar General Corp. rallied on merger activity.

Dollar General surged 12 percent after offering $9.7 billion for Family Dollar, which rallied 4.9 percent. Southwest Airlines Co. and Delta Air Lines Inc. led gains among industrial companies as oil prices fell. Homebuilders rose as confidence in the industry climbed to the highest level in seven months. Internet and biotechnology stocks advanced, continuing to pare losses from earlier this year.

The Standard & Poor’s 500 Index increased 0.9 percent to 1,971.74 at 4 p.m. in New York, within 0.8 percent of an all-time high. The Dow Jones Industrial Average gained 175.83 points, or 1.1 percent, to 16,838.74. The Nasdaq jumped 1 percent to the highest level since 2000. About 5.1 billion shares changed hands on U.S. exchanges today, 12 percent below the three-month average.

“People that were concerned about the possibility of a serious deterioration of the Russia-Ukraine situation and had no idea what was going to happen over the weekend came in this morning with a different perspective,” Marshall Front, chief investment officer at Chicago-based Front Barnett Associates LLC, said via phone. His firm manages $800 million. “The market opened up higher and we’ve been creeping up since then with some positive housing sentiment figures.”

Ukrainian Foreign Minister Pavlo Klimkin met his Russian counterpart Sergei Lavrov for more than five hours of talks in Berlin, as they sought to ease tension after officials in Kiev said troops had partially destroyed an armed convoy from Russia. Klimkin said the talks had brought “moderate progress,” though he called on Russia to follow words with actions.

Global Crises

Iraqi and Kurdish forces retook control of the Mosul Dam, Iraqiya television reported, citing military spokesman Qassem Ata. The U.S. widened its airstrikes in Iraq at the weekend to help secure the dam near Mosul, Iraq’s largest northern city, after it was seized by Islamist militants. Iraq is OPEC’s second-biggest oil producer.

Israel and Palestinian militants agreed to extend their truce, media on both sides of the conflict reported, providing more time for negotiations on a long-term accord to end violence that has devastated Gaza.

“We’ve seen very good earnings, and geopolitical tensions are not as elevated at the moment,” Patrick Spencer, head of U.S. equity sales at Robert W. Baird & Co., said by phone. “There’s been a lot of talk about a correction for equities, but markets are already a couple of points off their highs.”

Central Banks

The S&P 500 (SPX) fell as much as 3.9 percent from a record reached on July 24 amid growing concern over global conflicts from Ukraine to Gaza and Iraq. The benchmark index gained 1.2 percent last week as signs of a slowing economy stoked bets central banks will leave interest rates near record lows for longer.

Reports showed the euro area’s recovery stalled in the second quarter, spurring speculation the European Central Bank will boost stimulus measures. In the U.S., July retail sales registered the worst performance in six months, jobless claims rose more than forecast and consumer sentiment slipped.

The Federal Reserve is watching economic data to help gauge adjustments to monetary stimulus. The central bank remains on pace to wind down its monthly bond purchases in October. Fed Chair Janet Yellen has said officials will keep its benchmark interest rate low for a “considerable time” after the bond buying ends. The central bank releases minutes from its July meeting on Aug. 20.

Jackson Hole

The following day, the Fed Bank of Kansas City begins its annual symposium in Jackson Hole, Wyoming, where leading economists and central bankers will discuss the outlook for the economy and monetary policy. Yellen and ECB President Mario Draghi are among the speakers at the conference, this year titled “Re-Evaluating Labor Market Dynamics.”

Previous conferences there have foreshadowed some of the Fed’s biggest policy shifts since the financial crisis. In 2010 and 2012, then-Chairman Ben S. Bernanke signaled new bond buying that has pumped up the Fed’s balance sheet to a record $4.43 trillion.

“Ever since the Bernanke comments made a few years back that’s one of the things you have to keep an eye on,” Joe Saluzzi, co-head of equity trading at Chatham, New Jersey-based Themis Trading LLC, said via phone. “When the Fed gathers, you have to watch it. We all know what moves markets now, and it’s the Fed.”

Nasdaq Rebound

The Nasdaq has climbed 13 percent from this year’s low on Feb. 3, with Apple Inc. and Microsoft Corp. contributing the most to the gauge’s rebound, according to data compiled by Bloomberg. The last time the measure closed this high, on March 31, 2000, it went on to sink 46 percent through the end of that year as the dotcom bubble burst.

Yahoo! Inc. rallied 2.5 percent to $37.38, helping to send the Dow Jones Internet Composite Index to the highest since March. The Nasdaq Biotechnology Index jumped 1 percent to the highest closing level in five months. Both indexes have recovered most of their losses from March and April, when investors sold off the best performers during the five-year bull market amid concern valuations had become too expensive.

Achillion Pharmaceuticals (ACHN:US) Inc. advanced 3.1 percent to $9.54, extending gains for a seventh straight session. The biopharmaceutical company was raised to “buy” from “hold” by Deutsche Bank analyst Alethia Young.

Clothing retailer Urban Outfitters Inc. reported earnings today that beat analysts’ estimates. Of the S&P 500 companies that have reported quarterly results this season, 76 percent have topped earnings estimates, while 65 percent exceeded sales projections, according to data compiled by Bloomberg.

Dollar General

The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options prices known as the VIX, declined 6.3 percent to 12.32.

Dollar General jumped 12 percent, the most in the S&P 500, to a record $64.14. The company proposed to pay $78.50 a share in cash for Family Dollar, challenging Dollar Tree Inc.’s takeover bid of $74.50 a share in cash and stock. Dollar General forecast synergies of as much as $600 million on an annual basis, three years after completion of the deal.

Family Dollar shares added 4.9 percent to $79.81, while Dollar Tree fell 2.4 percent to $54.26.

Eight of 10 main groups in the S&P 500 advanced. Industrial stocks had the largest increase, surging 1.5 percent as airline shares climbed amid falling oil prices.

Delta Air gained 2.5 percent to $39.51, while Southwest Airlines added 3.6 percent to $30.82. Brent crude slid 1.8 percent to a 14-month low.

Homebuilders Advance

An S&P index of homebuilders gained 2.1 percent to the highest in three weeks as a report showed confidence rose in August, indicating the industry is making more headway after weakness earlier this year. The National Association of Home Builders/Wells Fargo sentiment measure climbed to 55 from 53 in July, the highest level in seven months.

Lennar Corp. increased 1.7 percent to $37.55 and D.R. Horton Inc. jumped 1.4 percent to $21.13.

Monster Beverage Corp. (MNST:US) lost 5.4 percent, the most in the S&P 500, to $88.44 after Jefferies Group LLC downgraded (MNST:US) the stock to hold from buy, saying it is fully valued. Monster Beverage surged 30 percent on Aug. 15 after Coca Cola Co. agreed to buy a stake (MNST:US), pushing its valuation to 36.1 times estimated earnings. That compares with a five-year average multiple of 24.7.

To contact the reporter on this story: Oliver Renick in New York at orenick2@bloomberg.net

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


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Companies Mentioned

  • ACHN
    (Achillion Pharmaceuticals Inc)
    • $13.06 USD
    • 1.22
    • 9.34%
  • MNST
    (Monster Beverage Corp)
    • $112.56 USD
    • 0.52
    • 0.46%
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