U.S. stocks rose, after the Standard & Poor’s 500 Index (CME:SPU13) snapped an eight-day rally yesterday, as Federal Reserve Chairman Ben S. Bernanke said the pace of bond purchases was not on a preset course.
Bank of America Corp. and Bank of New York Mellon Corp. gained more than 2% after earnings topped forecasts. Yahoo! Inc. advanced 9% as its profit beat analysts’ estimates. American Express Co. retreated 2.5% after analysts said a European Union proposal would cut profits. Caterpillar Inc. dropped 1.9% after short seller Jim Chanos said the company is being hurt by the slowdown in commodities demand.
The S&P 500 rose 0.3% to 1,681.70 at 1:42 p.m. in New York, after falling from a record high yesterday. The Dow Jones Industrial Average climbed 10.27 points, or 0.1%, to 15,462.12 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. “The Fed is going to respond to the data and they want to maintain flexibility in their policies.”
Bernanke said the central bank’s asset purchases “are by no means on a preset course” and could be reduced more quickly or expanded as economic conditions warrant.
“If the outlook for employment were to become relatively less favorable, if inflation did not appear to be moving back toward 2%, or if financial conditions -- which have tightened recently -- were judged to be insufficiently accommodative to allow us to attain our mandated objectives, the current pace of purchases could be maintained for longer,” Bernanke said in prepared testimony before the House Financial Services Committee.
Central bank stimulus has helped fuel a surge in stocks worldwide, with the benchmark U.S. index jumping 149% 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.
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% 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% to 13.84. The equity volatility gauge, which moves in the opposite direction as the S&P 500 about 80% of the time, reached a six-month high on June 20 and has fallen 32% since.
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% of S&P 500 members that have reported for the quarter so far, data compiled by Bloomberg show.
Bank of America added 3.2% to $14.36. The second- biggest U.S. lender beat analysts’ estimates by posting a 63% 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% to $30.97. The world’s largest custody bank said profit rose 79% as the stock-market rally boosted assets and fees for overseeing them.
Yahoo rose 9% to $29.30, 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 6.8% to $51.76. The Minnesota-based maker of heart-rhythm devices surged after second-quarter revenue fell less than analysts had estimated.
U.S. Bancorp, the nation’s largest regional lender, fell 1.5% to $36.70 after the firm said it expects mortgage revenue to continue to decline this year. Second-quarter net income climbed 4.9% to $1.48 billion, or 76 cents per share, matching the average estimate of 34 analysts.
American Express slipped 2.5% to $76.33. The European Commission will propose that interchange fees paid by retailers on card transactions should be capped at 0.2% for debit card payments and 0.3% 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% because the company gets 11% 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.
Mattel Inc., the largest U.S. toymaker, fell 6.5% to $43.34. 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 1.4% to $46.50.
Caterpillar Inc. dropped 1.9% to $86.54. 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.
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.
McDonald’s Corp. slid 0.7% to $100.18. 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.
American Tower Corp. fell 0.8% to $74.10 after short-seller Carson Block said the company is engaged in a “value-destroying investment binge” that will knock shares down 40%. 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 immediately respond to a message 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% to 10%. That compares with a jump of about 18% so far this year.