BLBG: U.S. Stocks Fluctuate Before Federal Reserve Decision
U.S. stocks fluctuated, after the Standard & Poor’s 500 Index rose to a third straight record, as investors awaited the Federal Reserve’s decision on stimulus and assessment of the economy.
General Motors gained 2.3 percent as quarterly profit topped estimates. Buffalo Wild Wings Inc. surged 8.7 percent after raising its full-year earnings forecast. LinkedIn Corp. fell 6 percent after its quarterly sales outlook missed analysts’ predictions.
The S&P 500 rose less than 0.1 percent to 1,772.81 at 10:03 a.m. in New York. The Dow Jones Industrial Average added 9.32 points, or 0.1 percent, to 15,689.67. The gauge earlier briefly surpassed its intraday record after closing yesterday at an all-time high. Trading in S&P 500 stocks was 2.5 percent below the 30-day average at this time of day.
“Markets are up because investors anticipate a status quo in the Fed’s quantitative-easing program,” said Jacques Porta, who helps oversee $780 million as a fund manager at Ofi Gestion Privee in Paris. “The recent data confirm a weak U.S. economy and the shutdown is not going to help. This will force the Fed to delay tapering stimulus until next year.”
The equity gauge has rallied 5.4 percent in October, heading for the biggest monthly gain in two years, as lawmakers ended a 16-day government shutdown and agreed to extend the U.S. borrowing authority, avoiding a possible debt default.
The S&P 500 yesterday rose 0.6 percent to set a record for a third straight day, as corporate earnings exceeded estimates and declines in retail sales and consumer confidence stoked speculation the Fed will maintain its bond purchases. The Dow also climbed to an all-time closing high.
Fed Decision
The Federal Open Market Committee concludes a two-day monetary-policy meeting today. The central bank will maintain stimulus measures at the current level until March 2014, economists forecast in a Bloomberg survey this month.
Financial-market participants will focus on any changes in the Fed’s assessment of the economy, according to Pacific Investment Management Co.’s Mohamed El-Erian.
“In particular, to get some handle on the impact on the congressional dysfunction and what that means for their growth projections,” El-Erian, chief executive and co-chief investment officer at the world’s biggest manager of bond funds, said in an interview on Bloomberg Television with Scarlet Fu and Michael McKee.
A private report today based on payrolls showed companies added fewer workers than projected in October, indicating the U.S. job market lost momentum amid the budget strife. The partial government shutdown will reduce economic growth by 0.3 percentage points this quarter at an annual rate, according to a Bloomberg News survey of economists.
Data Watch
The Labor Department will release its monthly employment report for October on Nov. 8, a week later than initially scheduled because of the shutdown.
A separate report today indicated the cost of living in the U.S. rose as projected in September as fuel charges climbed, capping the smallest year-to-year gain in five months. Inflation has been running below the Fed’s 2 percent objective in the near-term, giving policy makers room to maintain monetary stimulus.
“Low inflation is really allowing policy makers to maintain an accommodative stance,” Eric Teal, who helps oversee $5 billion as the chief investment officer at First Citizens BancShares Inc. in Raleigh, North Carolina, said by phone. “Job growth looks to remain challenging so we think that existing policies are likely stay in place for an extended period.”
Equity Valuations
The Fed’s stimulus has helped propel the S&P 500 up more than 160 percent from a 12-year low in 2009. The gauge has jumped 24 percent this year and is headed for its best annual gain since 2003.
While the rally has lifted equity valuations to a four-year high, with the index trading at 16 times estimated operating earnings, that’s still below the multiples at the market’s two previous peaks, when the ratio reached 16.5 in October 2007 and 25.7 in March 2000, data compiled by Bloomberg show.
Starbucks Corp. is among 35 members of the S&P 500 to report results today. Facebook Inc., which is not in the gauge, will also report after the regular session ends.
Profits for the broad equity gauge probably increased 3.7 percent during the third quarter as sales climbed 2.4 percent, according to analysts’ estimates compiled by Bloomberg. Earnings have grown by an average of 5 percent among the 312 companies that have reported so far, while sales have gained 2.9 percent.
Volatility Gauge
The Chicago Board Options Exchange Volatility Index, the gauge known as VIX that measures options traders’ estimate of future price swings in the S&P 500, rose 3.4 percent to 13.87 for a third day of gains. The gauge has lost 16 percent so far this month.
Seven of 10 main S&P 500 groups advanced today, with producers of raw materials rallying 0.5 percent to pace gains. Phone stocks slipped 0.6 percent.
General Motors gained 2.3 percent to $36.87. The largest U.S. automaker posted third-quarter profit that beat estimates as North American earnings, boosted by redesigned large pickups, helped buffer international losses.
Buffalo Wild Wings jumped 8.7 percent to $140.73 after saying late yesterday it expects full-year earnings growth of 28 percent, up from a previous estimate of 25 percent. That implies adjusted earnings of $3.83 a share, surpassing the average analyst projection of $3.64.
LinkedIn Slide
LinkedIn lost 6 percent to $232.23 as the world’s biggest professional-networking site said fourth-quarter revenue will be $415 million to $420 million. That trailed the average analyst estimate of $438.9 million.
Western Union Co. tumbled 17 percent to $16.02 for the biggest slide in the S&P 500. The largest money-transfer business reported a drop in third-quarter profit. Operating income won’t increase next year because of additional investments needed to comply with new and existing regulations, Chief Executive Officer Hikmet Ersek said.
Yelp Inc., owner of a website that lets consumers review local businesses, sank 6.7 percent to $64.24 after reporting a wider-than-estimated loss.
To contact the reporters on this story: Namitha Jagadeesh in London at njagadeesh@bloomberg.net; Nick Taborek in New York at ntaborek@bloomberg.net
To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net
