U.S. equities climb as Japan becomes a buyer

October 31, 2014 04:33 AM

U.S. stock-index futures jumped, signaling benchmark indexes may rally to new records, as an unexpected boost in stimulus from the Bank of Japan spurred optimism in the global economy.

LinkedIn Corp. rose 8.6 percent after third-quarter sales exceeded estimates. GoPro Inc. jumped 16 percent after its prediction for fourth-quarter profit surpassed analysts’ projections. Starbucks Corp. fell 3.7 percent after posting disappointing quarterly revenue. Citigroup Inc. lost 0.1 percent after saying it took a $600 million legal charge.

Standard & Poor’s 500 Index futures expiring in December advanced 1 percent to 2,008.20 at 8:40 a.m. in New York. Futures on the Dow Jones Industrial Average rallied 169 points, or 1 percent, to 17,283.

“The way markets are reacting, it certainly looks like news of Japan boosting stimulus was unexpected,” Kully Samra, who manages U.K. clients for Charles Schwab Corp. in London, said by phone. His firm oversees about $2.4 trillion. “Japan’s pension fund is increasing allocation to equities and that’s helping markets today. The U.S. economy looks fine, it’s the picture outside the U.S. that was concerning. Hopefully, Japan’s stimulus helps to increase global growth.”

Japan’s Government Pension Investment Fund said it will put half its holdings in local and foreign stocks, double previous levels, and invest in alternative assets. The Bank of Japan raised its annual target for monetary expansion to 80 trillion yen ($724 billion) from as much as 70 trillion yen. The Topix index soared the most in a year, leading a rally in equities around the world.

Equities Rally

Better-than-forecast corporate earnings and optimism in economic growth pushed the S&P 500 to within 0.83 percent of its Sept. 18 all-time high of 2,011.36, suggesting the gain implied by futures may be enough to catapult the index to a record when trading starts today.

Equities rose yesterday after data showed the U.S. economy expanded faster than forecast last quarter, signaling growth is strong enough to withstand the end of Federal Reserve bond buying.

Futures pared some of their gains today after data showed consumer spending in the U.S. unexpectedly dropped in September as incomes rose at the slowest pace of the year, indicating the economy will have difficulty.

The S&P 500 tumbled 7.4 percent from its record though Oct. 15 on concerns that Europe will slip into a recession and that growth was slowing in China.

The latest rally began after after Fed Bank of St. Louis President James Bullard said on Oct. 16 that policy makers should consider delaying the end of quantitative easing.

Earnings Scorecard

The Dow average closed yesterday within 85 points of its record from Sept. 19. The Russell 2000 Index of small companies is 4.4 percent below its all-time high set in March.

LinkedIn gained 8.6 percent to $220.44. New business lines including news content boosted third-quarter revenue by 45 percent to $568.3 million. That beat the $557.7 million average forecast of analysts surveyed by Bloomberg. Profit excluding some costs also beat estimates.

GoPro surged 16 percent to $79 after predicting fourth- quarter adjusted earnings of 65 cents to 69 cents a share. Analysts on average estimated 53 cents. The maker of cameras used in action sports also posted better-than-estimated third- quarter sales and profit, and said it will make a decision about returning cash to shareholders.

Apple Inc., Facebook Inc. and Twitter Inc. rose at least 0.8 percent in premarket trading, indicating technology stocks may advance.

Starbucks dropped 3.7 percent to $74.49. The world’s biggest coffee-shop chain posted fiscal fourth-quarter revenue of $4.18 billion, missing the $4.24 billion average analyst estimate, as competition intensified.

Citigroup lost 0.1 percent to $53.08 after revealing that it’s facing a U.S. criminal probe into its foreign-exchange business. The lender took a legal charge that forced it to restate third-quarter results. The bank increased its legal reserves after discussions with the U.K. Financial Conduct Authority, according to a person briefed on the talks.

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