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S&P 500 Closes Above 1,900 for First Time on Home Sales

By Callie Bost
May 23, 2014 4:47 PM EDT 73 Comments

The Standard & Poor’s 500 Index climbed to a record, closing above 1,900 for the first time, as Hewlett-Packard Co. (HPQ) rallied and data showed purchases of new homes climbed in April.

Hewlett-Packard jumped 6.1 percent after announcing more job cuts. GameStop Corp. rose 4.2 percent after reporting first-quarter earnings that topped analysts’ estimates. Aeropostale Inc. tumbled 25 percent after forecasting a bigger loss than analysts had estimated.

The S&P 500 rose 0.4 percent to 1,900.53 at 4 p.m. in New York, climbing above a record closing level reached May 13. The Russell 2000 (RTY) Index of small companies increased 1.1 percent while the Dow Jones Industrial Average and Nasdaq Composite Index turned higher for the year. About 4.6 billion shares changed hands on U.S. exchanges, the lowest volume of the year. U.S. equity markets are closed on May 26 for the Memorial Day holiday.

“The equity market is on autopilot with an upward bias,” Terry Sandven, chief equity strategist at Minneapolis-based U.S. Bank Wealth Management, which oversees $120 billion, said by phone. “Housing adds to consumer confidence, net worth and consumer spending. That is positive for sentiment and should be a positive for the broader markets.”

The S&P 500 climbed 0.2 percent yesterday for a second day of gains as data showing strength in manufacturing boosted confidence in the global economy. The gauge has advanced 1.2 percent this week after slipping for two consecutive weeks.

Small Caps

The Russell 2000 Index of smaller companies, with an average market value of $1 billion, has rallied 2.6 percent over three days. The index tumbled as much as 9.3 percent from a record on March 4 amid concern that prices have outrun earnings. Small-caps and Internet shares were among the biggest victims of the market retreat as investors fled last year’s best-performing equities.

Sales of new U.S. homes increased 6.4 percent, the most since October, to a 433,000 annualized pace from a revised 407,000 in March that was larger than initially estimated, Commerce Department data showed. The median forecast of 75 economists surveyed by Bloomberg called for the rate to accelerate to 425,000. The April gain reflected a surge in Midwest sales.

Central bank officials have been gauging the strength of the economy to help determine the pace of cuts to stimulus efforts that have sent the S&P 500 (SPX) up as much as 180 percent from a 12-year low in 2009. The Federal Reserve pared its monthly asset buying to $45 billion in April, its fourth straight $10 billion cut, and said further reductions in measured steps are likely.

Fed Stimulus

Fed policy makers said this week that continued stimulus doesn’t risk fueling a jump in the inflation rate. Central bank policy makers said last month the economy is showing signs of picking up and the job market is improving.

The S&P 500 is trading at almost 17.5 times reported earnings, the highest level since 2010. About 75 percent of S&P 500 companies that released results for the latest quarter have beaten estimates for profit, while 53 percent have exceeded projections for revenue.

The U.S. stock market is trading in the tightest range in eight years, according to data from Bespoke Investment Group LLC. In the last three months, the difference between the S&P 500’s intraday high and low has been less than 5 percent, the Harrison, New York-based research group said in a report yesterday.

Volatility Index

The Chicago Board Options Exchange Volatility Index, a gauge for U.S. stock volatility known as the VIX, dropped 5.6 percent to 11.36, the lowest level in more than a year. The VIX has closed below 15 for 27 straight days, the longest streak since December, when the index traded below that level for 35 consecutive days.

Eight of 10 main industries in the S&P 500 advanced. Technology stocks rallied 1 percent, while consumer-discretionary and raw-materials shares each climbed more than 0.8 percent.

Hewlett-Packard jumped 6.1 percent to $33.72. After reporting an 11th straight quarter of declining sales, Chief Executive Officer Meg Whitman is propping up profit by cutting as many as 16,000 more employees, on top of 34,000 already announced. Consumers are buying fewer personal computers and printers as they embrace smartphones and tablets, and companies are opting to use more software via the Internet or building their own machines.

GameStop, Aeropostale

GameStop climbed 4.2 percent to $38.43. The video-game retailer reported first-quarter adjusted earnings of 59 cents a share, exceeding analysts’ estimates by 2 cents. Comparable sales during the period rose 5.8 percent, the company said.

An S&P index of 11 homebuilders rallied 2.7 percent after the home sales data. D.R. Horton Inc. climbed 4.1 percent to $23.57 and Lennar Corp. surged 4 percent to $40.54. The gauge surged 2.1 percent yesterday as a separate report showed sales of previously owned U.S. homes increased in April.

Aeropostale tumbled 25 percent to $3.41. Chief Executive Officer Tom Johnson is trying to turn around the retailer after six straight quarters of losses. In April, the company announced it would close about 125 of its P.S. kids-focused stores and cut about 100 jobs. Investor Crescendo Partners has been pressing Aeropostale management for bigger changes, including possibly a sale of the company.

Aruba Networks Inc. (ARUN) dropped 11 percent to $17.89. The maker of wireless-network equipment reported third-quarter adjusted gross margin of 70.5 percent, missing analysts’ projections that called for 72.3 percent. The Sunnyvale, California-based company also reported third-quarter adjusted profit of 20 cents a share, matching estimates.

To contact the reporter on this story: Callie Bost in New York at cbost2@bloomberg.net

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

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