Policy: Economy

U.S. stocks advance to records amid Fed stimulus speculation

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Economy,Federal Reserve,Budgets and Deficits,Bloomberg News,Financial Markets

U.S. stocks advanced, with the Standard & Poor’s 500 Index poised for a record close, as investors awaited data this week on jobs and economic growth for clues on when the Federal Reserve will cut stimulus.

Time Warner Inc. gained 2.5 percent after reporting profit that surpassed analysts’ estimates. Ralph Lauren Corp. climbed 3.7 percent after the apparel maker boosted the lower end of its sales forecast and increased its dividends. Tesla Motors Inc. tumbled 11 percent as vehicle sales missed some analysts’ estimates. Abercrombie & Fitch Co. slumped 5.2 percent to $35.75 after posting sales that trailed expectations.

The S&P 500 rose 0.5 percent to 1,772.38 at 10:02 a.m. in New York, surpassing its previous record of 1,771.95 on Oct. 29. The Dow Jones Industrial Average added 107.23 points, or 0.7 percent, to 15,725.45. A close at that level would top the gauge’s all-time high set a week ago. Trading in S&P 500 stocks was 3.8 percent below the 30-day average during this time of the day.

“The Fed is in no rush to withdraw support,” said Manish Singh, who helps oversee $2 billion as head of investments at Crossbridge Capital in London. “What will make the Fed move toward reducing stimulus is economic growth, a lower unemployment rate and higher inflation rate all taken together, and we’re not there yet.”

Investors are watching data to gauge the health of the U.S. economy after the Fed said last week it needs to see more evidence of sustained improvement before slowing the pace of its $85 billion monthly bond purchases. The S&P 500 has surged 24 percent this year, heading for the best annual performance since 2003, as company earnings beat forecasts and the central bank maintained stimulus measures.

Data Watch

A report today showed the Conference Board’s index of U.S. leading indicators, a gauge of the outlook for the next three to six months, increased 0.7 percent in September. The median forecast of economists surveyed by Bloomberg called for a gain of 0.6 percent. The report, which was due Oct. 18, was postponed because of last month’s government shutdown.

Data later this week may show the U.S. economy slowed in the third quarter and employers hired fewer workers in October.

Commerce Department data tomorrow may show gross domestic product grew at a 2 percent annualized rate after a 2.5 percent pace in the second quarter, according to the median forecast of economists surveyed by Bloomberg. Payrolls rose by 120,000 workers last month after a 148,000 gain in September, while the jobless rate rose to 7.3 percent, Labor Department figures may show on Friday.

Target Rates

Fed officials have repeated in every policy statement since December that their target interest rate will remain near zero “at least as long as” unemployment exceeds 6.5 percent, so long as the outlook for inflation is no higher than 2.5 percent. Consumer prices rose 0.2 percent in September, indicating the cost of living is running below the Fed’s goal.

“Given that the unemployment rate is near 7 percent, close to the Fed’s 6.5 percent level, it’s more likely that the Fed will lower the threshold than start to taper,” Singh said.

Two separate papers by members of the Fed board yesterday argued the need to maintain a loose monetary policy to support growth in the world’s biggest economy.

William English, head of the Division of Monetary Affairs, supported the Fed’s strategy of maintaining low interest rates while unemployment is above 6.5 percent and wrote that an even lower threshold may be helpful. Another paper by David Wilcox said the weakness of the U.S. economy calls for a “highly accommodative monetary policy.”

Unemployment Threshold

“Our initial assessment is that they considerably increase the probability that the FOMC will reduce its 6.5 percent unemployment threshold for the first hike in the federal funds rate,” Jan Hatzius, chief economist of Goldman Sachs Group Inc., wrote yesterday, referring to the studies.

Of the 421 S&P 500 companies that have reported earnings so far, 75 percent have beaten analysts’ profit forecasts, according to data compiled by Bloomberg. Income for the broad index probably increased 4.1 percent in the third quarter, according to estimates compiled by Bloomberg.

Time Warner gained 2.5 percent to $69.96. The owner of the cable channels TNT, CNN and HBO boosted profits as the networks benefited from higher programming fees and advertising.

Ralph Lauren advanced 3.7 percent to $177.58. The company said it now expects full-year revenue to grow more than 5 percent, up from an earlier projection of an increase of at least 4 percent. Ralph Lauren raised its quarterly dividend to 45 cents a share from 40 cents.

Electric Cars

Tesla plunged 10 percent to $158.59 after saying it delivered about 5,500 of its Model S vehicles in the third quarter. Brian Johnson, an auto analyst at Barclays Plc, had expected 5,820, while Dan Galves of Deutsche Bank AG estimated the company would ship 5,850 cars.

Abercrombie & Fitch slumped 5.2 percent to $36.32. The retailer’s sales trailed analysts’ estimates as teens restrained spending on clothing.

Twitter Inc., the San Francisco-based short-message Internet service, will probably set the price for its initial public offering tonight and begin trading on the New York Stock Exchange tomorrow. It’s likely to raise more than $1.75 billion in a deal several times oversubscribed, two people with knowledge of the matter said this week.

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