U.S. Stocks Gain for Third Week Amid Economic Growth Optimism

New York (Nov 8)  U.S. stocks rose for a third week, with benchmark indexes closing at all-time highs, on speculation economic data has been strong enough to overcome a slowdown overseas and the end of the Federal Reserve’s stimulus program.

Energy and utility companies in the Standard & Poor’s 500 Index rose as Republicans won their first Senate majority in eight years, prompting speculation the party will oppose restrictions on coal producers. Consumer-staple shares in the U.S. climbed 2.1 percent as the European Central Bank vowed to increase stimulus efforts if needed. Genworth Financial Inc. plunged 40 percent as it predicted a tougher path ahead after a record loss.

The S&P 500 rose 0.7 percent to 2,031.92 for the five days. The Dow Jones Industrial Average (INDU) gained 183.41 points, or 1.1 percent, to 17,573.93. The Stoxx Europe 600 Index declined 0.5 percent, while the MSCI Asia Pacific Index slid 1.2 percent.

“General economic data remained positive this week,” John Carey, a Boston-based fund manager at Pioneer Investment Management Inc., which oversees about $230 billion, said in a phone interview. “The economy has enough momentum to get through the tapering process and keep growing. We also had the election, and the general feeling appears to be that it’s a positive step.”

Stock Recovery

The S&P 500 has recovered all of the losses suffered between Sept. 18 and Oct. 15. The main gauge for American equities plunged as much as 9.8 percent on an intraday basis amid concern global growth was slowing as the Fed was ending its bond-buying program.

Economic data for the week added to evidence that the world’s largest economy can sustain a withdrawal in central-bank stimulus. The Institute for Supply Management’s factory index increased to 59 in October, matching August’s level, which was the highest since March 2011.

Employment gains exceeded 200,000 for a ninth straight month in October, the government’s payrolls report showed on the final day of the week, although the result fell short of economists’ forecasts. The jobless rate unexpectedly fell to a six-year low, even as more people entered the labor force.

“It was a perfect report for the bulls,” Bruce Bittles, chief investment strategist at Milwaukee-based RW Baird & Co., which oversees $110 billion, said in a phone interview. “What has driven the market over the last five years? Sluggish employment growth that keeps the Federal Reserve from raising rates. Too strong of a report you have problems -- this is pretty much in the sweet spot.”

ECB Stimulus

The Stoxx Europe 600 Index had its first weekly loss in three weeks. ECB officials were unanimous on more stimulus if needed, President Mario Draghi told reporters after keeping interest rates unchanged. Draghi faces pressure to do more to support a slowing euro-area economy after the Bank of Japan unexpectedly boosted its stimulus plan.

In the U.S., Republicans retained control of the House and won enough seats to reclaim a Senate majority held by Democrats since 2006. Mitch McConnell, a Kentucky Republican, is poised to become the next Senate majority leader and set the legislative agenda for the final two years of Barack Obama’s presidency. McConnell has pledged to chip away at the 2010 health-care law and combat government efforts to curb carbon emissions.

Midterm Years

Fourth quarters of midterm years have produced average equity gains of 8 percent in the past 65 years, according to the Stock Trader’s Almanac. They’ve been followed by rallies of almost that much in the next three months, making the average 16 percent two-quarter rally the best combination of the election cycles.

Utility companies increased 1.6 percent for the week. NRG Energy Inc. (NRG) surged 12 percent. The operator of power-generating facilities reported third-quarter profits that exceed analyst forecasts.

NextEra Energy Inc. and Exelon Corp. gained more than 3.2 percent, while Southwestern Energy Co. and Consol Energy Inc. added more than 8.6 percent.

Energy companies were pressured early in the week as oil prices plummeted. Crude futures ended with a 2.3 percent decline for the five days. Oil has slumped into a bear market amid signs that global supply growth is outpacing consumption.

The S&P 500 Health Care Index decreased 0.5 percent as hospital operators fell amid speculation Republicans will repeal Obamacare now that the party has taken control of the Senate. The U.S. Supreme Court agreed to consider a challenge to the subsidies that are a linchpin of Obama’s health-care overhaul, accepting a case that suddenly puts the law under a new legal cloud.

Tenet Healthcare Corp. and Community Health Systems Inc. plummeted more than 13 percent.

Genworth Tumbles

Genworth Financial Inc. was the biggest decliner in the benchmark equity gauge, plunging 40 percent. The insurer predicted a tougher path ahead after reporting a record quarterly loss of $844 million, driven by costs tied to its long-term care insurance operation. The company’s credit rating was also cut to junk.

Whole Foods Market Inc. (WFM) gained 19 percent for the biggest increase in the S&P 500. The grocery-store chain posted better-than-expected quarterly profit as it slashed prices to win over bargain-hunting shoppers.

TripAdvisor Inc. decreased 17 percent. The online travel research company reported third-quarter earnings that were 20 percent short of the average analyst estimate.

Source: Bloomberg