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U.S. Stocks Rise as High-Yield Shares Gain Amid Jobs Data

By Callie Bost and Lu Wang
September 05, 2014 4:41 PM EDT 787 Comments

U.S. stocks rose, with the Standard & Poor’s 500 Index erasing a weekly loss, as geopolitical tensions eased and lower-than-estimated jobs data fueled bets the Federal Reserve won’t rush to raise interest rates.

Walgreen Co. rallied after reporting better-than-estimated sales. Yahoo! Inc., which owns 22 percent of Alibaba Group Holding Ltd., climbed 1 percent after the Chinese Internet company filed to raise as much as $21.1 billion in an initial public offering. Michael Kors Holdings Ltd. slid 4.5 percent after its biggest shareholder prepared to sell its stake.

The S&P 500 rose 0.5 percent to a record 2,007.71 at 4 p.m. in New York. The gauge ended 0.2 percent higher in the holiday-shortened week. The Dow Jones Industrial Average added 67.78 points, or 0.4 percent, to 17,137.36. About 5.2 billion shares changed hands on U.S. exchanges, 5.8 percent below the three-month average.

“This data point is much more dovish,” Alan Gayle, who helps oversee $49.5 billion as director of asset allocation for RidgeWorth Investments in Atlanta, said by phone. “It promotes the argument of keeping rates lower for longer. It supports Yellen’s more measured moving away from tightening.”

Employers added 142,000 jobs in August, the fewest this year, representing a pause in the recent momentum of the U.S. labor market as companies assess the prospects for demand. Weak growth in Europe prompted the region’s central bank to step up stimulus measures yesterday. Ukraine’s government and separatists in the country’s easternmost regions agreed on a cease-fire that will start today. The U.S. forged an alliance of NATO allies who pledged to combat Islamic State militants in Syria and Iraq.

August Rally

The S&P 500 gained 3.8 percent in August, the biggest increase since February, and topped 2,000 for the first time. The equities benchmark trades at 16.8 times its members’ projected earnings, its highest valuation since the end of 2009.

The Chicago Board Options Exchange Volatility Index (VIX), the gauge of S&P 500 options prices known as the VIX, fell 4.4 percent to 12.09 after three days of gains. The gauge lost 29 percent last month, the biggest drop in almost three years.

The payrolls gain, which was smaller than the most pessimistic forecast in a Bloomberg survey of economists, supports Fed Chair Janet Yellen’s view that “underutilization of labor resources still remains significant” even after the jobless rate declined faster than Fed officials expected. Today’s report showed unemployment fell again, to 6.1 percent.

Fed Watch

The Fed is gauging the strength of the labor market as it winds down a bond-buying program and considers the timing of raising interest rates. Policy officials next meet Sept. 16-17.

Increasing evidence that the economy is strengthening had fueled speculation the Fed may raise rates sooner than investors anticipate. Yellen has said the central bank will keep rates near record lows for a “considerable time” after bond purchases end.

Ukraine agreed on a cease-fire with pro-Russian separatists to stem months of bloodshed as European officials met to consider more penalties on Russia for its role in the conflict.

A NATO agreement on the Islamic State stopped short of firm commitments to wage a coordinated military campaign against the Sunni radical group. The group of 10 nations met on the sidelines of a summit in Newport, Wales, to discuss how to push back the militants, with President Barack Obama mustering an effort to pool allies’ resources.

Yield Play

All 10 of the main S&P 500 industry groups gained. NRG Energy Inc., PG&E Corp. and Xcel Energy Inc. rallied more than 1.8 percent to lead an advance in all 30 utilities in the S&P 500. The group yields 3.6 percent in dividends, the second-most among 10 industry groups.

Yahoo climbed 1 percent to $39.59. Hangzou, China-based Alibaba and shareholders including Yahoo plan to sell 320 million American depositary shares for $60 to $66 apiece, according to a regulatory filing today.

At the high end of that range, the offering would surpass Visa Inc.’s $19.7 billion IPO in March 2008 for the largest sale of new stock in the U.S. ever.

Walgreen Co. rose 2.4 percent to $63.95 to extend a two-day advance of more than 6 percent. The drug-store operator said total sales for the fourth quarter of fiscal 2014, which ended Aug. 31, rose 6.2 percent to $19.06 billion, topping the median estimate of $19.01 billion in a survey of analysts.

Michael Kors slid 4.5 percent to $76.39. The maker of designer clothing and handbags will hold a secondary offering to let the company’s biggest shareholder, Sportswear Holdings Ltd., sell a stake valued at about $930 million.

Market Movers

Dollar General Corp. fell 2.3 percent to $63.01. Family Dollar Stores spurned a sweetened $9.1 billion bid from Dollar General, saying it would be harder to get past antitrust regulators than a lower offer from Dollar Tree Inc.

Family Dollar dropped 1.2 percent, while Dollar Tree added 1.1 percent.

Gap Inc. sank 4.2 percent to $44.65. Sales at stores open at least a year declined 2 percent last month as demand dropped at its namesake clothing chain. Analysts estimated a 1.7 percent gain.

Gilead Sciences Inc. sank 1.4 percent to $105.36. The drugmaker is close to a pact with generic suppliers to bring low-cost versions of its $84,000 hepatitis C drug Sovaldi to about 80 developing countries.

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

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

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