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S&P 500 Extends Record as Durable-Goods Orders Increase

By Lu Wang
May 27, 2014 4:31 PM EDT 51 Comments

U.S. stocks advanced, with the Standard & Poor’s 500 Index extending a record, after durable goods orders unexpectedly rose and JBS SA offered to buy Hillshire Brands Co. for $6.4 billion.

Hillshire jumped 22 percent as JBS’s Pilgrim’s Pride Corp. unit made an unsolicited bid for the maker of Jimmy Dean sausages and Ball Park hot dogs. FirstEnergy Corp., NRG Energy Inc. and Exelon Corp. added more than 3.6 percent to help lead gains in the S&P 500. Bank of America Corp. climbed 3.4 percent after resubmitting its capital plan to the Federal Reserve. Small-cap stocks and technology companies extended a recovery from a two-month selloff.

The S&P 500 (SPX) rallied for a fourth day, increasing 0.6 percent to 1,911.91 at 4 p.m. in New York. The Dow Jones Industrial Average gained 69.23 points, or 0.4 percent, to 16,675.50. The Nasdaq Composite Index added 1.2 percent and the Russell 2000 Index (RTY) jumped 1.4 percent.

“Macro data like the durable number today will continue to do better in the second half of the year,” Daniel Skelly, an equity strategist at Morgan Stanley Wealth Management in New York, said in a phone interview. His firm had more than $1.9 trillion in client assets at the end of first quarter. “That’ll be positive for the market.”

U.S. equity markets were closed yesterday for the Memorial Day holiday. About 5.5 billion shares changed hands on U.S. exchanges today, 14 percent lower than the three-month average.

Worldwide Value

The value of equities worldwide climbed to a record $63.8 trillion yesterday. European Central Bank President Mario Draghi signaled yesterday a readiness to act on low inflation, while China’s premier said he may fine-tune economic policy.

Investors are returning to smaller companies and technology stocks with the Nasdaq Composite and Russell 2000 rising more than 3.4 percent in the past four days. Concern that valuations were too expensive sparked a selloff in early March, pushing both gauges to losses approaching 10 percent.

Facebook Inc. jumped 3.5 percent to $63.48 today, leading technology shares in the S&P 500 to a 1 percent gain, the most among 10 main industries.

“This market to me looks sturdy on its foundation,” Gene Peroni, portfolio manager at Advisors Asset Management Inc. in Conshohocken, Pennsylvania, said in a phone interview. His firm oversees about $14.7 billion. “Investors are going to recognize, despite the negativity that’s been broadcast, the market is really behaving well.”

The S&P 500 trades at 16.2 times the average projected earnings of its members, up from 14.8 on Feb. 3, according to data compiled by Bloomberg. The Russell 2000 has a multiple of 26 and the Nasdaq Composite is valued at 21.

Durable Goods

Orders for durable goods climbed for a third month in April, a sign U.S. factories will help the world’s biggest economy strengthen. Bookings for goods meant to last at least three years rose 0.8 percent after a 3.6 percent gain in the prior month that was stronger than previously reported, Commerce Department figures showed. The median forecast of 68 economists surveyed by Bloomberg called for a 0.7 percent drop.

In other economic reports, the Conference Board’s index of U.S. consumer confidence increased to 83 in May from 81.7 a month earlier. The S&P/Case-Shiller index of property prices in 20 U.S. cities increased 12.4 percent from March 2013 after a 12.9 percent gain in the year ended in February.

Hillshire rallied 22 percent to $45.19. Pilgrim’s Pride offered $45 a share in cash for the company, according to a statement today. The combined entity would have sales of $12.4 billion.

Utilities Jump

Utility stocks accounted for three of the 10 best performers in the S&P 500. PJM Interconnection LLC, which runs the largest U.S. power grid, said payments to electricity producers will more than double in the year starting June 2017 to ensure adequate generating capacity.

FirstEnergy rallied 5.6 percent to $33.23. Exelon increased 3.6 percent to $35.38 and NRG Energy advanced 4.7 percent to $35.31.

Pfizer Inc. (PFE) added 0.4 percent to $29.61. The largest U.S. drugmaker yesterday stopped its attempt to buy AstraZeneca for 69.4 billion pounds ($117 billion), saying the bid rejected by its London-based competitor represented full value. Under U.K. takeover rules, Pfizer had until 5 p.m. London time yesterday to make a firm offer. It must now wait at least three months before talks can restart with AstraZeneca.

Bank Shares

Financial companies had the second-biggest group gain in S&P 500, adding nearly 1 percent. Bank of America climbed 3.4 percent to $15.22. The second-biggest U.S. bank said regulators have 75 days to review the plan. The comprehensive capital analysis and review includes the company’s requests for dividends and buybacks. It had to resubmit its proposal after finding botched accounting on structured notes issued by Merrill Lynch.

Cisco Systems Inc. rose 0.8 percent to $24.71 as Deutsche Bank AG boosted its recommendation on the maker of networking equipment to buy from hold. The brokerage cited higher demand for the company’s new switching, routing, security, wireless and cloud-computing products.

Staples Inc. (SPLS) a maker of office stationary and furniture, slipped 2 percent to $11.42. Goldman Sachs Group Inc. cut its rating on the stock to sell from neutral, saying the company’s investments will offset the benefits of closing stores and cutting costs.

The Chicago Board Options Exchange Volatility Index rose 1.3 percent today to 11.51. The gauge of U.S. equity volatility known as the VIX dropped 8.7 percent last week to 11.36, its lowest level since March 2013.

VIX Calls

Traders are loading up on VIX call options as history shows there’s a good chance stock-market volatility is about to increase. Calls on the measure, which become more valuable during times of market stress, outnumbered ones betting on a decrease in market swings by 3.4-to-1 this month, the most since 2008, data compiled by Bloomberg show. The index has closed below 15 for the past 27 days. A study from Sundial Capital Research Inc. shows the gauge usually rises after reaching such low levels.

Investors have been watching tensions between Russia and Ukraine as well as developments in Thailand after last week’s coup. Ukraine’s government said it inflicted “significant” losses on pro-Russian rebels and retook a major eastern airport a day after President-elect Petro Poroshenko vowed to wipe out the separatists. The violence highlights that Poroshenko faces a difficult task of uniting Ukraine after his May 25 presidential election victory.

To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net

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

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