U.S. Stocks Increase for Week Amid Optimism Over Economy
New York (Sept 20) U.S. stocks rose for the week, sending benchmark indexes to records, as economic data improved and the Federal Reserve said it will raise interest rates when growth is strong enough to withstand higher borrowing costs.
Alibaba Group Holding Ltd. climbed 38 percent in its trading debut, after the Chinese Internet company raised a record-breaking $21.8 billion in an initial public offering. Auxilium Pharmaceuticals Inc. jumped 39 percent after attracting an acquisition offer from Endo International Plc. DuPont Co. (DD), Home Depot Inc. and Verizon Communications Inc. led gains in 28 of 30 stocks in the Dow (INDU) Jones Industrial Average.
The Standard & Poor’s 500 Index rose 1.3 percent to a record 2,010.4. The Dow added 292.23 points, or 1.7 percent, to 17,279.74, ending the week at an all-time high. Both gauges have risen in six of the last seven weeks.
“The market is telling us that it’s beginning to prepare for an eventual cessation of quantitative easing and a rate hike,” Kevin Caron, who helps oversee $170 billion at Stifel Nicolaus & Co. in Florham Park, New Jersey, said in a phone interview. “That’s caused global asset flows to seek the dollar, boosting all dollar-denominated assets, and that’s what we’ve seen in stocks.”
Federal Reserve
The Fed maintained a commitment to keep interest rates near zero for a “considerable time” after asset purchases are completed in October. Central bank officials raised their median estimate for the federal funds rate at the end of 2015 to 1.375 percent, compared with 1.125 percent in June. The rate will be 3.75 percent at the end of 2017, the Fed said in its Summary of Economic Projections.
Fed Chair Janet Yellen said in a Sept. 17 press conference that “there is no mechanical interpretation” of the “considerable time” phrase. The committee’s decision to raise the federal funds rate will ultimately be “data-dependent,” she said.
Jobless claims decreased by 36,000 to 280,000 in the period ended Sept. 13, the Labor Department said. The median forecast of 52 economists surveyed by Bloomberg called for a decline to 305,000. Those already collecting unemployment benefits fell to a more than seven-year low.
A Fed gauge of manufacturing in the New York region jumped to a five-year high. Other data this week showed the cost of living in the U.S. unexpectedly dropped in August for the first time in more than a year, showing inflation still is falling short of the Fed’s goal.
Global Indexes
The Stoxx Europe 600 Index added 1.2 percent for its fifth weekly advance out of six. Germany’s DAX Index (DAX) added 1.5 percent, while France’s CAC 40 Index rose 0.4 percent.
The MSCI Asia-Pacific Index (MXAP) declined 0.9 percent in the week. Japan’s Topix gained 1.4 percent. The Shanghai Composite Index fell 0.1 percent, the first loss in three weeks.
China provided 500 billion yuan ($81.4 billion) of liquidity to the country’s five biggest banks as Premier Li Keqiang steps up stimulus to support economic growth, Sina.com reported on Sept. 16. The People’s Bank of China started providing the banks with 100 billion yuan each through standing lending-facilities with durations of three months, the news website said, citing banking analyst Qiu Guanhua at Guotai Junan Securities Co.
Volatility Gauge
The Chicago Board Options Exchange Volatility Index (VIX), a gauge of investor concern derived from S&P 500 options prices, decreased 9 percent to 12.11. The index plummeted 29 percent in August, the biggest monthly drop since October 2011.
All 10 of the S&P 500’s main groups advanced in the week, with phone companies rising 3.4 percent to lead gains. Technology companies rose the least, adding 0.5 percent as a group.
Alibaba rose 38 percent to $93.89 in its first day of trading. The e-commerce company, which started in 1999 with $60,000 cobbled together by founder Jack Ma, is now valued at $231.4 billion. That makes it larger than Amazon.com Inc. and EBay Inc. combined, and more valuable than all but 9 companies in the S&P 500.
Auxilium Pharmaceuticals surged 39 percent to $31.14. Endo International, a maker of pain drugs, said it bid $28.10 a share in cash and stock for the maker of men’s health medicines. Endo said its offer didn’t include a deal for QLT Inc., which Auxilium agreed to take control of in June. That purchase hasn’t yet closed. Auxilium said on Sept. 17 that it has adopted a one-year holder rights plan and confirmed its QLT offer.
Market Movers
DuPont Co. jumped 10 percent to $71.25 in the week for its biggest gain in more than five years. Activist investor Nelson Peltz called for a breakup of the chemical company and criticized its board for failing to meet earnings targets and destroying shareholder value. DuPont has as much as $4 of billion excess costs and should separate its agriculture, health and nutrition operations, Peltz’s Trian Fund Management LP said in a statement.
Darden Restaurants Inc. (DRI) rallied 7.6 percent to $51.19 after investor Starboard Value LP proposed that the company could boost the Olive Garden operator’s earnings by as much as $326 million. Starboard’s suggestions included asking diners if they want wine, putting salt in the pasta pots, clearing tables faster and developing a smartphone application. Darden said in a Sept. 18 statement that it’s designating four seats on its board for Starboard nominees.
Source: Bloomberg
