At last, fundamentals outweigh Fed speak

March 20, 2014 07:55 AM

U.S. stocks rose after better-than- forecast data on leading indicators and regional manufacturing fueled optimism in the economy, overshadowing comments that interest rates may rise in the middle of next year.

Microsoft Corp. gained 2.4 percent after Morgan Stanley said the company’s anticipated Office software for Apple Inc.’s iPad could deliver $1.2 billion a year in billings. AT&T Inc. jumped 3.3 percent to lead a rally in phone stocks. Guess? Inc. slipped 4.9 percent after its full-year earnings projection trailed analysts’ predictions.

The S&P 500 gained 0.5 percent to 1,870.73 at 12:29 p.m. in New York. The Dow Jones Industrial Average added 113.12 points, or 0.7 percent, to 16,335.29. Trading in S&P 500 stocks was 2.5 percent above the 30-day average at this time of day.

“The market has digested and even discounted a bit what Yellen said, and put things into perspective,” Stephen Carl, principal and head equity trader at New York-based Williams Capital Group LP, said in a phone interview. “We have to see how the economy continues to move along. People are back focusing on signs of economic growth.”

The equities benchmark fell 0.6 percent yesterday after Federal Reserve Chair Janet Yellen said the central bank’s stimulus program could end this fall and benchmark interest rates could rise about six months later. The Fed had previously said it would not raise rates for a considerable period, without specifying a time frame.

Fed Stimulus

Quarterly Fed forecasts also showed more officials predicting that the benchmark rate, now close to zero, will rise to at least 1 percent at the end of 2015 and 2.25 percent a year later. The central bank said it would trim its monthly bond purchases by $10 billion to $55 billion.

Three rounds of Fed stimulus and low interest rates have helped boost the equity gauge as much as 178 percent from a 12- year low as U.S. stocks enter the sixth year of a bull market.

Yellen also said harsh winter weather was a significant reason for weakness this year in economic data from housing to jobs.

Data today showed the world’s largest economy will strengthen after the weather-induced slowdown in the first quarter, as the index of leading indicators rose more than forecast in February.

Data Watch

Jobs data today indicated the number of Americans filing applications for unemployment benefits held last week near the lowest level in almost four months, a sign the labor market continues to strengthen.

The Philadelphia Fed’s manufacturing gauge rose to 9.0 in March from minus 6.3 the prior month. The average estimate was for an increase to 3.2. Separate data showed purchases of previously owned homes declined in February to the lowest level since July 2012.

Investors also watched the situation in Ukraine, where the government in Kiev said yesterday it plans to reinforce its eastern border with Russia and withdraw troops from Crimea, ceding control of the Black Sea peninsula as tensions remained high over Russian moves to annex the breakaway region.

President Barack Obama said today the U.S. is imposing financial sanctions on a wider swath of Russian officials and a Russian bank as he authorized further penalties that would directly target sectors of the economy.

Volatility Gauge

The Chicago Board Options Exchange Volatility Index, a gauge for U.S. stock volatility, fell 2.1 percent at 14.81.

Eight of the 10 main industries in the Standard & Poor’s 500 Index advanced, with phone and bank stocks rising at least 1.3 percent to pace gains. AT&T jumped 3.3 percent, the most since January 2013, to $34.06 for the biggest jump in the Dow.

The KBW Bank Index jumped 2 percent before the results of annual reviews known as stress tests, due today and on March 26. The outcome may enable America’s lenders to unlock more than $75 billion that they hold in excess capital.

JPMorgan Chase & Co. rallied 2.8 percent to $59.93, the highest since 2000.

If the banks pass the Federal Reserve’s capital-planning simulations, they may increase their dividends and buybacks by 69 percent over the next 12 months, according to analyst estimates compiled by Bloomberg.

Microsoft gained 2.4 percent to $40.23, the highest since July 2000. Chief Executive Officer Satya Nadella is expected to debut a version of Office for the iPad at an event next week. Morgan Stanley maintained its equalweight view on the stock.

Guess declined 4.9 percent to $27.36 after forecasting earnings for fiscal-year 2015 of $1.40 to $1.60 a share, missing the average analyst estimate of $2.03 a share. The apparel maker predicted a first-quarter net loss of 5 cents to 9 cents a share.

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