Inside Financial Markets

U.S. Stocks Rise as Bernanke Says Data to Determine QE

brenankiU.S. Stocks Rise as Bernanke Says Data to Determine QE

U.S. stocks rose, after the Standard & Poor’s 500 Index snapped an eight-day rally yesterday, as Federal Reserve Chairman Ben S. Bernanke said the central bank’s asset purchases are not on a preset course.

Bank of America Corp. and Bank of New York Mellon Corp. gained more than 2.1 percent after earnings topped forecasts. Yahoo! Inc. advanced 9.9 percent as its profit beat estimates. American Express Co. retreated 1.3 percent after analysts said a European Union proposal would cut profits. Caterpillar Inc. dropped 1.7 percent after short seller Jim Chanos said the company is being hurt by a slowdown in commodities demand.

The S&P 500 rose 0.3 percent to 1,680.97 at 2:31 p.m. in New York, after falling from a record high yesterday. The Dow Jones Industrial Average climbed 6.1 points, or less than 0.1 percent, to 15,457.93 today. Trading in S&P 500 stocks was in line with the 30-day average at this time of day.

“The market is responding to the fact that the Fed is not going to create an arbitrary definition of when and how the QE program is going to end,” Stephen Wood, the New York-based chief market strategist who helps oversee about $174 billion at Russell Investments, said by phone. “They want to maintain flexibility in their policies.”

Bernanke said the central bank’s bond purchases “are by no means on a preset course” and could be reduced more quickly or expanded as economic conditions warrant.

Watching Data

“We’re going to be responding to the data,” Bernanke said today to the House Financial Services Committee. “If the data are stronger than we expect, we’ll move more quickly” to reduce purchases. If data “don’t meet the kinds of expectations we have about where the economy’s going, then we would delay that process or potentially increase purchases for a time.”

Central bank stimulus has helped fuel a surge in stocks worldwide, with the benchmark U.S. index jumping 149 percent from its March 2009 low. Fed policy makers have been debating the timing and pace of any cuts in the central bank’s $85 billion in monthly bond purchases. Bernanke has said any reduction will be tied to sustained improvement in the labor market or an increase in inflation.

The U.S. economy maintained a “modest to moderate pace” of growth in recent weeks, the Fed said today in its Beige Book business survey.

“Residential real estate and construction activity increased at a moderate to strong pace in all reporting districts,” the Fed said in the survey, which is based on anecdotal reports from its 12 regional banks. “Manufacturing expanded in most districts since the previous report.”

Housing Starts

Data today showed U.S. housing starts unexpectedly fell in June to the lowest level in almost a year. Work began on 836,000 houses at an annualized rate last month, the least since August 2012 and down 9.9 percent from a revised 928,000 pace in May, figures from the Commerce Department showed today in Washington. The reading was weaker than projected by any economist in a Bloomberg survey.

The Chicago Board Options Exchange Volatility Index, which measures the cost of protecting against swings on the S&P 500, dropped 4.5 percent to 13.77. The equity volatility gauge, which moves in the opposite direction as the S&P 500 about 80 percent of the time, reached a six-month high on June 20 and has fallen 33 percent since.

Nine out of 10 industries in the S&P 500 advanced, with phone, raw-material and financial companies increasing more than 0.7 percent.

Some 21 companies, including EBay Inc. and International Business Machines Corp., are due to release results today. Per-share earnings topped estimates at about 71 percent of S&P 500 members that have reported for the quarter so far, data compiled by Bloomberg show.

Bank Earnings

Bank of America added 3.2 percent to $14.37. The second-biggest U.S. lender beat analysts’ estimates by posting a 63 percent gain in profit that was driven by lower provisions for bad credit and a drop in expenses.

Chief Executive Officer Brian T. Moynihan has said he’ll eliminate $8 billion in annual costs by the end of 2014 and $10 billion tied to troubled mortgages a year later. The biggest banks are focused on curbing expenses amid new regulations, higher capital requirements and sluggish lending.

Bank of New York Mellon climbed 2.1 percent to $30.99. The world’s largest custody bank said profit rose 79 percent as the stock-market rally boosted assets and fees for overseeing them.

Yahoo rose 9.9 percent to $29.55, the highest level since May 2008. The company reported second-quarter earnings of 35 cents a share, beating analysts’ estimates. The company made $225 million in earnings in the quarter from its equity interest in both Alibaba Group Holding Ltd. and Yahoo Japan Corp., up from $180 million in the same period last year.

St. Jude Medical Inc. advanced 5.7 percent to $51.23. The Minnesota-based maker of heart-rhythm devices surged after second-quarter revenue fell less than analysts had estimated.

U.S. Bancorp

U.S. Bancorp, the nation’s largest regional lender, fell 1.6 percent to $36.67 after the firm said it expects mortgage revenue to continue to decline this year. Second-quarter net income climbed 4.9 percent to $1.48 billion, or 76 cents per share, matching the average estimate of 34 analysts.

American Express (AXP) slipped 1.3 percent to $77.24. The European Commission will propose that interchange fees paid by retailers on card transactions should be capped at 0.2 percent for debit card payments and 0.3 percent for credit cards, according to draft plans obtained by Bloomberg.

The proposal would reduce New York-based American Express’s earnings-per-share by about 3.7 percent because the company gets 11 percent of its business from Europe, Morgan Stanley analysts said in a research note. Credit Suisse analysts said the plan would hurt American Express more than MasterCard Inc. or Visa Inc., which have already agreed to provisionally cap some fees.

Barbie Sales

Mattel Inc., the largest U.S. toymaker, fell 6.8 percent to $43.16. Second-quarter profit fell short of analyst forecasts, as declining demand for the aging Barbie doll line and increased costs to expand the American Girl chain hurt results.

Hasbro Inc. fell 2.3 percent to $46.10.

McDonald’s Corp. slid 0.8 percent to $100.05. Janney Montgomery Scott LLC downgraded the world’s largest restaurant chain to neutral from a buy rating, with a 12-month price target of $105 a share.

Caterpillar dropped 1.7 percent to $86.64. The largest maker of construction and mining equipment “is tied to the wrong products at the wrong time in the cycle,” Chanos said today in a speech at the CNBC Institutional Investor Delivering Alpha Conference in New York.

‘Being Aggressive’

Chanos, the president and founder of Kynikos Associates Ltd., said he’s shorting the stock and the company is “being aggressive with their acquisitional accounting.”

Jim Dugan, a spokesman for Caterpillar, declined to comment on Chanos’s statements.

American Tower Corp. fell 0.7 percent to $74.22 after short-seller Carson Block said the company is engaged in a “value-destroying investment binge” that will knock shares down 40 percent. Shares of the operator of cell-phone antennas have almost tripled since 2008.

The company has overstated the value of acquisitions in the U.S. and Brazil, and the shares are worth $44.57 a share, Block’s firm, Muddy Waters Research, wrote in a report published on its website today.

Matt Peterson, an American Tower spokesman, didn’t respond to messages seeking comment.

Leon Cooperman, founder of Omega Advisors Inc., said the stock market could correct or stay at the current level after its rally since March 2009.

“I wouldn’t be surprised if the market corrects or goes sideways,” Cooperman said today at the CNBC Institutional Investor Delivering Alpha Conference.

For the longer term, he predicted that over the next 12 months the S&P 500 will rise 5 percent to 10 percent. That compares with a jump of about 18 percent so far this year.


Sanie Khan

Sanie Khan holds a deep knowledge of the financial markets in Pakistan. Based in Karachi, he has over 20 years of hands-on management experience in financial technologies and managing operations in the financial sector. He was the General Manager at the Pakistan Stock Exchange (PSX) for 17 years. He along-with senior members of Exchange

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