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U.S. Stocks Rise to Records as GDP Growth Tops Estimates

By Lu Wang and Callie Bost
December 20, 2013 4:43 PM EST 126 Comments
The New York Stock Exchange
The New York Stock Exchange

U.S. stocks rose, with the Standard & Poor’s 500 Index capping its biggest weekly gain since October, as data showing faster-than-estimated growth boosted confidence in the world’s largest economy.

Red Hat (RHT) Inc. surged 14 percent as the software company raised its full-year profit and sales forecasts. Responsys Inc. jumped 40 percent as Oracle Corp. agreed to buy the marketing company for $1.5 billion in cash. CarMax Inc. declined 9.4 percent as the largest U.S. seller of used cars posted earnings that missed analysts’ estimates.

The S&P 500 added 0.5 percent to a record 1,818.32 at 4 p.m. in New York. The Dow Jones Industrial Average rose 42.06 points, or 0.3 percent, to 16,221.14, also an all-time high. About 9.2 billion shares changed hands on U.S. changes in the busiest trading since June as futures and options contracts expired today in a process known as quadruple witching and the operator of the S&P 500 rebalanced the index in a quarterly move to adjust member weightings.

“The market is feeling somewhat confident,” said Robert Pavlik, chief market strategist in New York at Banyan Partners LLC, which manages about $4.5 billion. “It’s encouraging as an investor and consumer to see GDP get up to these levels. GDP reaching 4 percent makes you feel good about the economy and where we’re headed.”

The S&P 500 rose 2.4 percent this week, halting a string of two weekly declines and erasing a loss for the month, after the Federal Reserve’s decision to slow the pace of its stimulus boosted investor confidence that the recovery in the world’s largest economy is on course. The Dow’s weekly advance of 3 percent was its biggest since September.

GDP Expansion

Data today showed the rate of expansion in the third quarter was faster than previously estimated as consumers stepped up spending on services such as health care and companies invested more in software. Gross domestic product climbed at a 4.1 percent annualized rate, the strongest since the final three months of 2011 and up from a previous estimate of 3.6 percent, Commerce Department figures showed.

“This revised GDP number was really positive,” Colleen Supran, a principal at San Francisco-based Bingham, Osborn & Scarborough, which manages about $3 billion, said in a phone interview. “It helps complete the story on what the Fed did this week and that is, the Fed has some belief that the economy is getting close to being able to stand on its own.”

The S&P 500 has rallied 27 percent so far in 2013, on course for its best performance since 1997. Three rounds of central-bank bond purchases have helped propel the equity benchmark 169 percent higher from a 12-year low in 2009.

The Fed will probably reduce its bond purchases by $10 billion in each of its next seven meetings before ending the program in December 2014, according to the median forecast in a Bloomberg survey of 41 economists conducted on Dec. 19.

Volatility Gauge

The Chicago Board Options Exchange Volatility Index (VIX) dropped 2.5 percent today to 13.79. The gauge of S&P 500 options known as the VIX fell 13 percent this week.

Announced index changes, such as the addition of Facebook Inc.’s inclusion in the S&P 500, took effect after the markets’ closed.

Money managers needed to buy and sell about $13.8 billion of shares as they shuffled their funds to mimic changes in the S&P 500 quarterly rebalance, according to estimates from Howard Silverblatt, a senior index analyst at S&P Dow Jones Indices in New York. He forecast utility companies will see the biggest increase in their representation while the weighting of consumer staples will drop the most.

Nine of the 10 S&P 500 main industries advanced. Utility and technology shares rose more than 0.8 percent to lead gains. Phone stocks fell 0.6 percent for the only decline.

Red Hat surged 14 percent to $56.10. Adjusted earnings for its 2014 financial year will be $1.46 to $1.48 per share, the company predicted, up from its previous forecast of $1.36 to $1.38. Revenue may be about $1.53 billion, exceeding the average analyst estimate for $1.51 billion.

Asset Acquisitions

Responsys (MKTG) soared 40 percent to $27.40. Oracle, the world’s largest seller of database software, agreed to buy Responsys for $27 a share, gaining marketing software that helps businesses sell to consumers. Oracle lost 0.6 percent to $36.37 after a four-day rally.

Jazz (JAZZ) Pharmaceuticals Plc jumped 8 percent to $123.91. The maker of the narcolepsy treatment Xyrem said it will buy Gentium SpA, a rare-disease drug developer, in a deal valued at $1 billion. Gentium’s American depositary receipts added 2.8 percent to $57.22.

Textron Inc. rallied 14 percent to $37.29. The manufacturer of Cessna aircraft and Bell helicopters was near a $1.4 billion purchase of planemaker Beechcraft Corp. and an announcement could be made as soon as today, the Financial Times reported, citing unidentified people familiar with the matter. Dave Sylvestre, a spokesman for Textron, said the company had no comment on the newspaper’s report.

Patent Optimism

Allergan (AGN) Inc. advanced 3.8 percent to $107.73. The maker of the Botox wrinkle treatment may be issued a patent for its Restasis eye drops as soon as January, Ken Cacciatore, an analyst with Cowen & Co., said in a note, citing legal consultants.

Ariad Pharmaceuticals Inc. rallied 16 percent to $6.43. The cancer-drug maker will return its only product, Iclusig, to the U.S. market after regulators approved a new prescribing and risk management plan.

BlackBerry (BBRY) Ltd. surged 16 percent, the most since April 2009, to $7.22. The struggling smartphone maker struck a five-year deal with Foxconn Group to manufacture its devices, following another quarterly plunge in sales and mounting losses. The deal lets BlackBerry offload more of the costs of its unprofitable manufacturing operations, helping it focus on corporate software and services.

CarMax declined 9.4 percent to $48.08 for the biggest drop in the S&P 500. (SPX) Third-quarter profit was 47 cents a share, trailing the average analyst estimate by 1 cent.

Fastenal (FAST) Co. slumped 5 percent to $45.62. The retailer of nuts, bolts and other fasteners said it expects to miss analysts’ estimates for four-quarter earnings because of slower-than-expected sales growth.

To contact the reporters on this story: Lu Wang in New York at lwang8@bloomberg.net; Callie Bost in New York at cbost2@bloomberg.net

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

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