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Policy: Economy

US stocks rise before economic data amid corporate earnings

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Goldman Sachs,United States,Economy,Bloomberg News,Financial Markets

U.S. stocks rose, after the Standard & Poor’s 500 Index rallied for four straight weeks, as investors watched company earnings and awaited this week’s releases on employment and economic growth.

Kellogg Co. jumped 3.9 percent after announcing it will reduce its global workforce by seven percent as part of a four- year cost-saving plan. U.S. Steel Corp. and AK Steel Holding Corp. gained more than 3.8 percent as Goldman Sachs Group Inc. raised its ratings on the companies. BlackBerry Ltd. tumbled 11 percent as Fairfax Financial Holdings Ltd. walked away from a $4.7 billion takeover plan.

The S&P 500 gained 0.1 percent to 1,763.55 at 10:24 a.m. in New York. The Dow Jones Industrial Average rose 11.25 points, or 0.1 percent, to 15,626.80. Trading in S&P 500 stocks was 12 percent below the 30-day average during this time of the day.

“The path of least resistance continues to be up,” James Dunigan, who helps oversee $118 billion as chief investment officer in Philadelphia at PNC Wealth Management, said by phone. “In general, the earnings picture is good. Valuations with the market at these levels are probably in the fair range. As you get into year-end portfolio adjustments, playing on that momentum we’ll likely see the market continue to do well here as opposed to selling off. I think if there are any sort of corrections they’ll be short lived in this environment.”

The equity gauge jumped 4.5 percent in October as the Federal Reserve decided to continue $85 billion in monthly bond purchases, and companies beat earnings forecasts. Investors are watching data to gauge the health of the U.S. economy after the Fed last week said it needs to see more evidence of sustained improvement before reducing the pace of its monthly bond purchases.

Economic Growth

The S&P 500 has surged more than 160 percent from a bear market low in 2009 as the central bank introduced unprecedented monetary stimulus to spur growth. The benchmark gauge is up 23.7 percent this year, poised for the best annual gain since 2003.

The economy probably slowed in the third quarter and employers hired fewer workers in October, economists project reports to show this week.

Gross domestic product grew at a 2 percent annualized rate after a 2.5 percent pace from April through June, according to the median forecast of 69 economists surveyed by Bloomberg before Commerce Department figures due Thursday. Growth in consumer spending, the biggest part of the economy, was probably the weakest since 2011. Payrolls rose by 125,000 workers last month after a 148,000 gain in September, Labor Department figures may show Friday.

Data today showed U.S. factory orders increased 1.7 percent in September after falling 0.1 percent the prior month. Economists estimated a gain of 1.8 percent for September.

“We’ve been in this slow growth environment for some time and we don’t see it breaking out of the trend,” Rex Macey, who helps oversee $20 billion as chief investment officer at Wilmington Trust Investment Advisors in Atlanta, said in a phone interview. “That’s the thing markets kind of like, where it could be a little warmer, but at least it’s not too hot.”

Annual Increase

The rally in U.S. equities may accelerate in the final two months of the year and lift the S&P 500 to its biggest annual increase in 16 years, a look at historical data suggests. Since 1928, shares have climbed in November and December 82 percent of the time when the benchmark gauge advanced at least 10 percent through October, data compiled by S&P and Bloomberg show. The mean increase of 6 percent in this period signals that the index could jump to 1,862.79.

Seventy-six percent of the 373 S&P 500 companies that have reported earnings so far have beaten analysts’ estimates, according to data compiled by Bloomberg.

The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options known as the VIX, climbed 2.6 percent today to 13.63, trimming its decline for the year to 25 percent.

Seven of 10 S&P 500 main industries advanced as telephone, energy and technology companies climbed more than 0.2 percent to lead the gain.

Kellogg, the world’s largest cereal maker, gained 3.9 percent to $64.74. The company’s cost-saving program, known as “Project K,” will result in total, pretax charges of between $1.2 billion and $1.4 billion, the company said.

Steel Companies

U.S. Steel climbed 3.8 percent to $26.76. Goldman Sachs raised its rating of the largest U.S. producer of the alloy to buy from sell. The shares closed last week at a 10-month high after the company shut down some capacity.

AK Steel Holding Corp. jumped 9.4 percent to $5.03. Goldman upgraded the shares to buy from sell.

Sysco Corp. gained 4.4 percent to $34. The distributor of food to restaurants, hospitals and schools reported profit of 49 cents a share for the fiscal first quarter, beating the average analyst estimate of 47 cents in a Bloomberg survey.

BlackBerry tumbled 11 percent to $6.92 as the company attempts to recover with a management shakeup and $1 billion bond deal. Rather than acquiring the company, Fairfax will invest $250 million in the convertible bonds, according to a statement today.

As part of the new agreement, Chief Executive Officer Thorsten Heins will step down from the company. Former Sybase AG CEO John Chen will become executive chairman, putting him in charge of the company’s strategy.

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