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U.S. Stocks Rise to Record on Fed Statement Before Economic Data

September 19, 2013

Sept. 19 (Bloomberg) -- U.S. stocks rose, sending the Standard & Poor’s 500 Index to another record, after the Federal Reserve unexpectedly refrained from cutting monetary stimulus and investors awaited data on home sales and leading indicators.

The S&P 500 advanced 0.2 percent to 1,729.13 at 9:32 a.m. in New York.

"The Bernanke put is back," said Keith Wade, who helps oversee $388 billion as chief economist at Schroders Plc in London, referring to the Fed’s policy of supporting financial markets through monetary policy, which some investors liken to the insurance against losses offered by owning a put option. "Risk assets will enjoy the ride."

The benchmark index climbed 1.2 percent to a record yesterday as the Fed unexpectedly refrained from reducing bond buying. Treasury yields have jumped since May, when Fed Chairman Ben S. Bernanke first outlined a possible timetable for a reduction in asset purchases.

The Federal Open Market Committee said it wants more evidence of an economic recovery before paring its $85 billion- a-month bond-buying program, surprising economists who predicted a reduction in the plan. The Fed has held the main interest rate near zero since December 2008 and pushed its balance sheet to a record $3.66 trillion through three rounds of stimulus, helping send the S&P 500 155 percent higher since March 2009.

"To be fair to Bernanke, he set the conditions necessary for tapering and the conditions are not there," Ross Yarrow, who sells U.S. equities to European investors for Robert W. Baird & Co. in London, said in a phone interview today. That’s "not because of any particular deterioration but because, by talking about tapering, he already achieved an adjustment in yields," Yarrow said.

 

Treasury Yields

 

Ten-year U.S. Treasury yields climbed as high as 3.01 percent on Sept. 6 from 1.61 percent on May 1. They plunged 16 basis points yesterday to 2.69 percent.

Equity gauges whose performance some chart analysts consider predictive of stock market gains closed at records yesterday, including the Dow Jones Transportation Average, the Russell 2000 Index and the Morgan Stanley Cyclical Index. The S&P 500 Financials Index is about 1 percent from its five-year high from July, though it remains 45 percent below its 2007 record, according to data compiled by Bloomberg.

Data today showed jobless claims in the U.S. rose less than forecast last week as two states began working through a backlog of applications that were caused by computer-system changeovers.

 

Economic Data

 

The Conference Board releases its index of U.S. leading economic indicators for August at 10 a.m. New York time. The measure climbed 0.6 percent last month, according to a Bloomberg survey of economists. Other data today may show sales of existing homes fell in August.

Investors are also watching the political wrangling over the approaching limit on federal spending. Government funding expires Oct. 1 and the Treasury is expected to exhaust its ability to borrow funds in mid-October, when it will hit the statutory debt limit.

House Republicans could vote as soon as today on a spending plan that seeks to avoid a shutdown by giving party members a chance to deny funds for President Barack Obama’s health-care law. The measure is sure to be rejected by the Democratic-led Senate.

 

--With assistance from Nick Taborek in New York. Editors: Jeff Sutherland, Andrew Rummer

 

To contact the reporter on this story: Alexis Xydias in London at axydias@bloomberg.net

 

To contact the editors responsible for this story: Andrew Rummer at arummer@bloomberg.net; Lynn Thomasson at lthomasson@bloomberg.net

 

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