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U.S. Stocks Rise as Technology, Small-Cap Shares Rally

By Joseph Ciolli
May 12, 2014 4:39 PM EDT 76 Comments
Traders work on the floor of the New York Stock Exchange on May 7, 2014.
Photographer: Andrew Burton/Getty Images
Traders work on the floor of the New York Stock Exchange on May 7, 2014.

U.S. stocks climbed, pushing benchmark indexes to records, after Internet and small-cap shares rallied amid deals activity that boosted confidence in the world’s largest economy.

Salesforce.com Inc. and TripAdvisor Inc. jumped at least 5.8 percent as all 41 members in the Dow Jones Internet Index rose. The gauge surged 3 percent after last week plunging 3.6 percent. 21st Century Fox Inc. jumped 3.1 percent after reports that Rupert Murdoch’s British Sky Broadcasting Group Plc is in talks to buy European pay TV assets from Fox. Pinnacle Foods Inc. surged 13 percent after Hillshire Brands Co. agreed to buy it for about $6.6 billion including debt.

The Standard & Poor’s 500 Index (SPX) rose 1 percent to 1,896.65 at 4 p.m. in New York, rising above its record from April 2. The Dow Jones Industrial Average added 112.13 points, or 0.7 percent, to 16,695.47, extending an all-time high. The Nasdaq Composite Index surged 1.8 percent, the most since January, to trim its decline this year to 0.8 percent. About 5.7 billion shares changed hands on U.S. exchanges, 13 percent below the three-month average.

“The global economy is accelerating, central banks are dovish, companies are making acquisitions and it’s hard to see what could keep the market down from here,” said Allan von Mehren, chief analyst at Danske Bank A/S in Copenhagen.

The S&P 500 has rallied 4.5 percent from an April 11 low, recovering all of its losses after a selloff in technology and small-cap stocks that overshadowed optimism about the strength of the economy. Tech shares in the index jumped 1.5 percent today.

Technology Rebound

While the Nasdaq has recovered 3.6 percent from its April low, it remains 4.9 percent below a 13-year high in March. Netflix Inc., which fell as much as 31 percent from its record two months ago, rallied 5.1 percent today.

Some of the technology shares hardest hit last week rebounded today. Twitter Inc. (TWTR) added 5.9 percent after falling 18 percent last week, the most since its initial public offering in November. Facebook Inc. rose 4.5 percent following a 5.3 percent drop last week. Yahoo! Inc. gained 2 percent after slumping 8.4 percent last week, the most since September 2011.

“We’re seeing a little bit of a bounce back from some of the stocks that got hit the most over the last couple weeks,” Terry Morris, a senior equity manager who helps oversee about $2.8 billion at Wyomissing, Pennsylvania-based National Penn Investors Trust Co., said in a phone interview. “We’ve had a big divergence between large cap versus small cap, and growth versus value. If you look at the Russell 2000 and some of the technology or Internet-related stocks, they’ve really taken a pounding.”

Earnings Scorecard

About 76 percent of the 453 S&P 500 companies that have released results this earnings season have beaten estimates for profit, while 53 percent have exceeded revenue projections, data compiled by Bloomberg show.

Profit at the companies will probably rise 7.2 percent this year, as sales will climb 4 percent, according to analysts’ estimates compiled by Bloomberg.

Retailers including Macy’s Inc., Kohl’s Corp. and Nordstrom Inc. are among companies scheduled to disclose results this week. Investors will also scrutinize data on retail sales tomorrow.

Data last week showed services, the biggest chunk of the economy, picked up in April while fewer Americans than forecast filed applications for unemployment benefits, a sign the labor market continues to gain traction.

Exceeded Expectations

“Profits from the latest quarterly reporting season have exceeded expectations, while the outlook for the U.S. economy looks increasingly positive,” said Richard Hunter, head of equities at Hargreaves Lansdown Plc in London.

Russia indicated it “respects” the results of two disputed referendums in eastern Ukraine, which separatists said backed independence, while the European Union added companies to its list of sanctions for the first time.

Russia praised the high turnout in yesterday’s ballots, according to a statement e-mailed today by President Vladimir Putin’s press service. The U.S. and the EU deem the votes illegal and the government in Kiev called them a “farce.” Donetsk showed 90 percent backing for the breakaway plan, while in Luhansk, 94 percent to 98 percent supported autonomy with turnout at 75 percent, Russia’s state-run RIA Novosti reported.

Volatility Slides

The Chicago Board Options Exchange Volatility Index, a gauge for U.S. stock volatility known as the VIX, fell 5.34 percent today to 12.23, the lowest level since Jan. 10. The gauge has fallen 43 percent since reaching a two-year high on Feb. 3.

Eight of the 10 main S&P 500 groups advanced today. Producers of raw materials rallied 1.3 percent to pace gains, as Alcoa Inc. gained 4.2 percent. United Technologies Corp. and General Electric Co. rose at least 1.4 percent as industrial shares advanced.

21st Century Fox Class A shares added 3.1 percent to $35.19. BSkyB, 39 percent owned by Fox, said today it’s in talks to buy the Italian and German pay-TV assets of Fox. Such a deal, for control of satellite carriers Sky Italia and Sky Deutschland AG, would be valued at about 10 billion euros ($14 billion), people with knowledge of the matter told Bloomberg News, which reported the talks on May 9. Fox has about 57 percent of Sky Deutschland and 100 percent of Sky Italia.

Frozen Food

Hillshire Brands fell 3.2 percent to $35.76. The maker of Jimmy Dean sausages and Sara Lee frozen bakery goods agreed to pay $18 in cash for each Pinnacle Foods share plus 0.5 shares of Hillshire Brands stock, Chicago-based Hillshire and Pinnacle said today in a statement. Pinnacle Foods shares jumped 13 percent to $34.47.

RadioShack (RSH) Corp. rose 4.5 percent to $1.39. Standard General reported a 9.8 percent stake in the electronics chain, up from a 4.83 percent at the end of December.

RadioShack, which said in March it would close as many as 1,100 locations to cut costs, is proceeding with a plan to shut fewer stores because of a snag with its lender agreements.

Vantiv Inc. gained 3.1 percent to $29.82. The payment-processing company is near a deal to acquire Mercury Payment Systems Inc. for about $1.65 billion, people familiar with the matter said.

Allergan Inc. slipped 1 percent to $159.72. The maker of the Botox wrinkle treatment said Valeant Pharmaceuticals International Inc.’s offer “substantially undervalues” the company. The bid, which valued Allergan at $45.7 billion in cash and stock when it was announced, creates “significant risks and uncertainties” and isn’t in the best interest of shareholders, the Irvine, California-based company said in a statement today.

To contact the reporter on this story: Joseph Ciolli in New York at jciolli@bloomberg.net

To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net Jeremy Herron, Jeff Sutherland

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