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U.S. Stocks Rise on Fed Bets After Decline in Durables Orders

August 26, 2013

Aug. 26 (Bloomberg) -- U.S. stocks rose, following the Standard & Poor’s 500 Index’s first weekly gain since Aug. 2, as investors speculated whether a report showing durable-goods orders fell in July would delay stimulus cuts.

Amgen Inc. jumped 9.6 percent after agreeing to buy cancer- treatment developer Onyx Pharmaceuticals Inc. in a $10.4 billion transaction. Facebook Inc. advanced 2.3 percent to $41.67 as the world’s largest social network’s market value exceeded $100 billion. Tyson Foods Inc., the largest U.S. meat processor, fell 6.8 percent after Bank of America Corp. analysts cut their rating on the stock.

The S&P 500 rose 0.2 percent to 1,667.25 at 12:30 p.m. in New York. The Dow Jones Industrial Average added 25.31 points, or 0.2 percent, to 15,035.82. Trading in S&P 500 stocks was 29 percent below the 30-day average at this time of day.

"It’s another data point that indicates a slow recovery," Eric Teal, who helps oversee $5 billion as the chief investment officer at First Citizens BancShares Inc. in Raleigh, North Carolina, said by phone. "Given that the Fed’s position is data dependent, then I think that the odds are increasing that there’ll be less tightening than more."

Stocks rebounded last week after a report showing a plunge in home sales eased concern that the Federal Reserve would curb stimulus efforts next month. Officials have been weighing whether the economy is strong enough to prompt a reduction in stimulus, which has helped propel the S&P 500 up as much as 153 percent from its March 2009 low.

 

Fed Debate

 

Speculation about the stimulus has whipsawed stocks since May, when Chairman Ben S. Bernanke first indicated cuts could start this year. Sixty-five percent of economists in a Bloomberg Aug. 9-13 survey said the first reduction would come at the Sept. 17-18 meeting.

The Commerce Department report today showed bookings for goods meant to last at least three years decreased 7.3 percent, the most since August 2012, after a 3.9 percent gain in June. The median forecast of economists surveyed by Bloomberg called for a 4 percent drop. Orders waned for aircraft and capital goods such as computers and electrical equipment.

The Chicago Board Options Exchange Volatility Index, or VIX, rose 0.3 percent to 14.02. The equity volatility gauge reached its highest level this year in June and has since fallen 32 percent.

Seven of 10 major groups in the S&P 500 rose today. Shares in raw-materials producers gained 0.9 percent to pace advances.

 

Housing Stocks

 

An S&P index of homebuilders rallied 1.3 percent, rebounding from a 3.1 percent drop on Aug. 23 following the new home-sales report. The gauge has lost 25 percent since climbing to near a six-year high on May 14, as rising interest rates have raised concern that the housing recovery could slow. Treasury 10-year yields retreated today.

KB Home rose 1.6 percent to $16.71 today and Toll Brothers Inc. advanced 1.7 percent to $31.72. Home Depot Inc., the largest U.S. home-improvement retailer, climbed 2.7 percent to $75.91 for the biggest increase in the Dow.

"The home industry is on firm footing," Jim Russell, senior equity strategist for U.S. Bank Wealth Management, said in an interview from Cincinnati. His firm oversees $110 billion. "We do think the homebuilders are going to be pretty much tied at the hip to the daily interest rate moves, and absolutely tied to what’s decided on the taper."

 

Amgen, Onyx

 

Amgen gained 9.6 percent to a record $115 for the biggest gain in the S&P 500. The pharmaceuticals maker agreed to pay $125 a share for Onyx’s outstanding stock, the companies said in a statement yesterday. Onyx’s Kyprolis, approved last year for a rare blood cancer, may spur more than $3 billion in revenue by 2021, according to analyst estimates compiled by Bloomberg. Onyx jumped 5.7 percent to $123.64.

Anadarko Petroleum Corp. climbed 2 percent to $91.60. The oil explorer said in a statement yesterday it agreed to sell a 10 percent stake in a Mozambique gas field to ONGC Videsh Ltd., a unit of India’s biggest energy explorer, for $2.64 billion.

Tesla Motors Inc. gained 5.9 percent to a record $171.41, sending the carmaker’s market value above $20 billion on investor optimism that Elon Musk can widen the appeal of electric-powered vehicles. Shares of the Palo Alto, California- based company, which had its initial public offering just three years ago, have surged about fivefold this year..

Facebook advanced 2.3 percent to $41.46. The company’s valuation topped $100 billion for the first time since the day of its initial public offering. The stock has more than doubled since falling to a record low of $17.73 in September.

 

Steel, Chickens

 

TMS International Corp. jumped 12 percent to $17.46. Chicago’s Pritzker family, owner of a controlling stake in Hyatt Hotels Corp., agreed to acquire the steel mill servicer for $690 million in cash. TMS is the largest producer of outsourced industrial services to steel mills in North America as measured by revenue.

Tyson Foods dropped 6.8 percent to $29.33 for the steepest decline in the S&P 500. Ryan Oksenhendler and Bryan Spillane at Bank of America’s Merrill Lynch unit cut the shares to neutral, similar to a hold rating, from buy, after a 62 percent rally this year.

"Industry data indicate a steep increase in production," the analysts wrote in a report today. "In our view, this is likely to cause industry margins to peak sooner than we expected." They also cut Tyson’s 2014 profit estimates, citing lower chicken prices.

 

Valuations Rise

 

Price gains of stocks in the S&P 500 are outpacing profits by the fastest rate in 14 years as the bull market extends beyond the average length of rallies since Harry S. Truman was president.

The benchmark gauge for U.S. equities has risen 14 percent relative to income over the past 12 months to 16 times earnings, according to data compiled by Bloomberg. Valuations last climbed this fast in the final year of the 1990s technology bubble, just before the index began a 49 percent tumble. The rally that started in March 2009 has now outlasted the average gain since 1946, the data show.

"Markets have been running away," Robert Royle, who helps oversee $21 billion as manager of the North American Trust at Smith & Williamson Investment Management LLP in London, said by telephone on Aug. 20. "Everyone is hoping for a second-half recovery in fundamentals," he said. "I am just not sure what will drive the recovery."

 

--With assistance from Alexis Xydias in London. Editor: Jeremy Herron

 

To contact the reporter on this story: Nick Taborek in Washington at ntaborek@bloomberg.net

 

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net

 

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