U.S. stocks had their best week in four months, with the Standard & Poor’s 500 Index reaching an all-time high, on bets the Federal Reserve will support the economy even as it shows signs of gaining strength.
The S&P 500 advanced 1.7 percent to 1,988.40 for the five days, the most since April and the third straight weekly increase. The Dow Jones Industrial Average (INDU) added 338.31 points, or 2 percent, to 17,001.22. The Nasdaq Composite Index jumped 1.7 percent to a 14-year high. The Stoxx Europe 600 Index jumped 2.1 percent, the most since February. Apple Inc. climbed above $100 to an all-time high.
Trading in the U.S. was the slowest of the year, with average daily volume of about 4.8 billion shares.
“We’ve had a week of pretty strong economic data, pretty solid earnings, and this is the first major Fed information we’ve had in a while,” Richard Slinn, the San Francisco-based co-head of investments for Northern California at JP Morgan Securities LLC, said by phone.
The S&P 500 closed at a record 1,992.37 on Aug. 21, and came within 6 points of the 2,000 milestone in intraday trading. The gains came after the S&P 500 (SPX) started August with the worst weekly decline in more than two years. More than $900 billion has been restored to American equity values since then, as the market rebounded amid speculation central banks will keep interest rates low and concern over crises from Ukraine to Iraq eased.
Minutes from the Fed’s July meeting released during the week reinforced the central bank’s commitment to supporting the recovery even as some policy makers indicated a willingness to raise rates sooner than anticipated. Fed Chair Janet Yellen said in a speech at the annual economics conference in Jackson Hole, Wyoming, that slack remains in the labor market even after gains made during the five years of economic recovery.
Fed Bank of St. Louis President James Bullard said in an interview with Bloomberg Radio that the U.S. central bank may begin tightening monetary policy earlier than officials previously expected, citing an improvement in labor markets, while Atlanta Fed President Dennis Lockhart urged more patience.
Data during the week showed fewer Americans than forecast applied for unemployment benefits, while purchases of previously owned U.S. homes unexpectedly rose in July to a 10-month high. The Conference Board’s index of U.S. leading indicators, a gauge of the outlook for the next three to six months, increased 0.9 percent, topping forecasts.
The cost of living in the U.S. climbed in July at the slowest pace in five months, indicating price pressures remain limited even as the economy picks up. Low inflation has given the Fed room to hold rates near zero even as economic growth shows signs of accelerating.
“The economy in the U.S. feels like it’s gaining momentum, the only headwinds I see would be valuation on U.S. stocks and Europe,” Bernie Williams, chief investment officer at San Antonio-based USAA Federal Savings Bank, said in a phone interview.
Three rounds of Fed stimulus and better-than-projected corporate earnings have helped the S&P 500 almost triple since its low in March 2009. The S&P 500 has not had a decline of 10 percent in almost three years. It trades at 17.8 times the reported earnings of its companies, near the highest level since 2010.
The Stoxx Europe 600 Index rallied 2.1 percent in the past five days for a second weekly gain amid optimism the European Central Bank will do more to support the recovery.
After the European market closed for the week, ECB President Mario Draghi in a Jackson Hole speech called for governments to do more to help the euro-area economy. The move comes as pressure mounts on the ECB for radical measures such as quantitative easing. One year after the end of the currency bloc’s longest-ever recession, the economy has stalled, unemployment remains near a record high and inflation is the weakest in almost five years.
Europe remained in the geopolitical spotlight as tensions escalated in Ukraine on the final day of the week. NATO said it has seen large transfers of advanced weapons and sees an “alarming build-up” of Russian forces near Ukraine.
The Chicago Board Options Exchange Volatility Index, the gauge of S&P options prices known as the VIX, slipped 13 percent for the week to 11.47, the lowest level since July 16. The gauge has lost 16 percent this year.
Retailers gained 4.5 percent as companies including Home Depot Inc. and Gap Inc. reported results that topped estimates.
Home Depot advanced 5.6 percent to a record after the company raised its forecast. Macy’s climbed 7.5 percent and Gap jumped 8.4 percent. Urban Outfitters Inc. surged 10 percent.
Hewlett-Packard Co. jumped 5.1 percent after the technology provider reported its first revenue growth in 12 quarters amid a surge in personal-computer sales.
Nineteen companies in the S&P 500 posted results during the week as the earnings season wound down. More than 75 percent of those that have reported for the quarter beat analysts’ estimates.
Industrial stocks gained 2.3 percent, the most among 10 main groups in the S&P 500, as Southwest Airlines Co. (LUV:US) led with a 7.1 percent advance.
Financial shares also added 2.3 percent, as Bank of America Corp. climbed 6 percent after agreeing to pay $16.7 billion to end federal and state probes into mortgage bond sales that helped fueled the 2008 financial crisis.
Homebuilders soared 5 percent for the biggest rally since January. Lennar Corp. added 6 percent and KB Home increased 5.9 percent. Housing starts surged in July to the highest level in eight months and purchases of previously owned homes rose as low borrowing costs and an increase in inventory drew buyers.
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