U.S. Stocks Rise as Disappointing Data Ease Taper Concern

U.S. stocks rose as disappointing economic data fueled bets that any Fed cuts this month would be moderate. Investors will see a reduction next week as no big deal because it would be on a small magnitude of $10 billion, which shouldn't have any impact.

By Nikolaj Gammeltoft & Lu Wang
Sep 13, 2013 10:54 AM MTM
Bloomberg

U.S. stocks rose, with the Standard & Poor’s 500 Index headed for its best week since July, as disappointing economic data fueled bets that any Federal Reserve stimulus cuts this month would be moderate.

Safeway Inc. (SWY) advanced 6.9 percent after Credit Suisse Group AG raised its recommendation for the shares. Intel Corp. gained 2.9 percent after Jefferies Group LLC upgraded the stock. Peabody Energy Corp. dropped 3.3 percent as the Environmental Protection Agency revises proposed rules for new power plants.

The Standard & Poor’s 500 rose 0.3 percent to 1,687.73 at 1:52 p.m. in New York. The gauge has climbed 2 percent in the past five days, headed for its best week since July 12. The Dow Jones Industrial Average gained 0.5 percent to 15,370.98. Trading in S&P 500 stocks was 14 percent below the 30-day average at this time of day.

“The view is that we’re recovering and continue to do it in a slow pace,” Channing Smith, who helps oversee about $1.2 billion at Capital Advisors Inc. in Tulsa, Oklahoma, said in a phone interview. “The Fed will begin to taper but will be on a magnitude of $10 billion, which shouldn’t have an impact.”

Investors, who have been scrutinizing economic data to determine whether growth is robust enough for the Fed to slow stimulus following its Sept. 17-18 meeting, will see a reduction next week as no big deal, according to a Bloomberg Global Poll of investors.

Fifty-seven percent of those surveyed say they don’t expect a sudden change in the markets because investors already anticipate tapering action.

Economic Data

A Commerce Department report today showed retail sales in the U.S. rose 0.2 percent, the smallest increase in four months and below the 0.5 percent advance seen in Bloomberg survey.

Wholesale prices in the U.S. rose more than forecast in August, adding 0.3 percent on higher costs for food and some fuels. A separate report showed inventories at companies increased more than forecast in July, trailing a gain in sales that signals a pickup in factory orders.

The Thomson Reuters/University of Michigan preliminary September index of consumer sentiment fell to 76.8 from 82.1 last month, which was the lowest since April. A Bloomberg survey projected the gauge would be little changed at 82, according to the median forecast of 71 economists.

The Fed will taper its $85 billion in monthly bond-buying by $10 billion to $75 billion after next week’s meeting, according to the median forecast of economists in a Bloomberg News survey. Fed stimulus helped push the S&P 500 more than 150 higher from its March 2009 low, as better-than-estimated corporate earnings also fueled gains.

Syria Concerns

The S&P 500 fell 0.3 percent yesterday, halting a seven-day win streak, amid concern that the U.S. has not ruled out military action against Syria. The threat of a U.S. strike roiled markets in August, dropping the S&P 500 to its worst performance since May 2012.

Secretary of State John Kerry reported a “constructive” start to talks with his Russian counterpart over bringing Syria’s chemical weapons under international oversight, while giving no sign of a breakthrough. Kerry told Syrian opposition figures yesterday that the option of a U.S. military strike remains on the table.

“Syria had a negative impact on markets in August, and now the negative impact is coming off,” Randy Warren, chief investment officer at Warren Financial Service, said in a phone interview. His firm oversees $100 million.

Debt Debate

Investors are also watching renewed political wrangling over the approaching limit on federal spending. Government funding expires Oct. 1 and the Treasury is expected to exhaust its ability to borrow funds in mid-October, when it will hit the statutory debt limit.

U.S. House members left Washington for the weekend yesterday after leaders shifted strategies in an effort to win over dissenting Republicans willing to risk a financial crisis to sidetrack President Barack Obama’s health-care law. Republicans said they will try to use the spending-bill talks to delay the health-care law instead of defunding it.

The CBOE Volatility Index (VIX), the gauge of S&P 500 options prices known as the VIX, fell 0.6 percent to 14.21. The equity volatility gauge has tumbled 16 percent in September after rallying 26 percent in August, the biggest monthly gain since May 2012.

Broad Gains

All 10 main industries in the S&P 500 advanced today, with utility stocks and producers of consumer staples rising at least 0.7 percent. NRG Energy Inc. jumped 2.9 percent to $27.12 and Procter & Gamble Co. added 1 percent to $79.05.

Intel climbed 2.9 percent to $23.29 for the biggest gain in the Dow. Jefferies boosted its recommendation on the world’s largest chipmaker to buy from hold.

Safeway surged 6.9 percent to $28.42 for the steepest rise in the S&P 500. Credit Suisse upgraded the second-largest U.S. supermarket chain to outperform, similar to buy, from underperform.

Ulta Salon, Cosmetics & Fragrance Inc. surged 18 percent to $117.94 after reporting second-quarter earnings of 70 cents a share, beating the 67-cent average projection by analysts in a Bloomberg survey.

Peabody Energy dropped 3.3 percent to $17.95. The stock has fallen three straight days after reports that Obama would ban new coal plants without strict emission controls. The environmental rules are expected to be released next week. Cliffs Natural Resources Inc. lost 1.1 percent to $22.18.

An S&P gauge of homebuilders fell 0.9 percent. Lennar Corp. retreated 1.9 percent to $34.24 and D.R. Horton Inc. slid 1.2 percent to $19.13.

Twitter Offering

Twitter Inc. disclosed it had filed to go public in one of its 140-character postings yesterday, giving no other financial figures or details on when it will actually list. Twitter’s market debut will be led by Goldman Sachs Group Inc. and is likely to be the most anticipated initial public offering since Facebook Inc. listed last year.

“What Twitter management and Goldman are doing is observing that valuations are at healthy levels and that it’s a good time to attempt an IPO of this scale,” Lawrence Creatura, a Rochester, New York-based fund manager at Federated Investors Inc., which oversees about $364 billion, said in a phone interview.

The S&P 500 trades at 16.2 times reported earnings, above the average multiple of 15.3 over the past five years, data compiled by Bloomberg show. The gauge has advanced 18 percent this year through yesterday.

To contact the reporters on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net; Lu Wang in New York at lwang8@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net

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