U.S. stocks pared gains as investors dissected the Federal Reserve’s pledge to keep borrowing costs low for a “considerable time” even as policy makers predicted faster rate increases next year.
Financial, commodity and industrial shares led gains in seven of the 10 main industry groups in the Standard & Poor’s 500 Index. FedEx Corp. and Lennar Corp. rallied more than 3 percent after posting earnings that topped analysts’ estimates. Auxilium Pharmaceuticals Inc. jumped 46 percent, the most ever, after getting a takeover bid.
The S&P 500 increased 0.2 percent 2,002.07 at 3:52 p.m. in New York after rising as much as 0.6 percent following the release of the Fed’s statement at 2 p.m. Trading of S&P 500 stocks was 21 percent higher than the 30-day average at this time of day. The Dow Jones Industrial Average increased 26.78 points to a record 17,158.75 after jumping as much as 89 points.
Fed Chair Janet “Yellen may be a hawk in dove’s clothing because she keeps reiterating that economic data can change the pace of rate hikes and the path to normalization,” Karyn Cavanaugh, the New York-based senior market strategist at Voya Investment Management LLC, said. “The economy is gaining steam, I think we could see some increase in rates by March or sooner.”
Stocks extended gains as the Fed said the economy is expanding at a moderate pace and inflation is below its goal while maintaining a commitment to keep interest rates near zero for a “considerable time” after asset purchases are completed. Fed officials raised their median estimate for the federal funds rate at the end of 2015 to 1.375 percent, compared with 1.125 percent in June. The rate will be 3.75 percent at the end of 2017, the Fed said in its Summary of Economic Projections.
The Chicago Board Options Exchange Volatility Index, the benchmark gauge of options prices known as the VIX, lost 3.1 percent to 12.33 after earlier gaining as much as 14 percent.
China Lending
The S&P 500 rallied 0.8 percent yesterday, led by energy stocks, after China’s central bank reportedly started providing about $81 billion in loans to its biggest banks.
Data today showed the cost of living in the U.S. unexpectedly dropped in August for the first time in more than a year, showing inflation still is falling short of the Fed’s goal. The central bank is scrutinizing data on labor and prices to gauge whether the economic recovery is strong enough to withstand higher borrowing rates.
The S&P 500 will advance to 2,050 by the end of the year, according to Credit Suisse Group AG equity research analysts who raised their estimate from an earlier projection of 2,020. Equities are “abnormally cheap” compared with other asset classes, the Credit Suisse team said. Stocks will continue to climb through mid-2015, according to the report, before a second-half correction in 2015 as the Fed raises interest rates.
Market Movers
FedEx added 3.3 percent to $159.83. The company’s first- quarter earnings increased 24 percent, helped by the completion of a record buyback program, growth in domestic air shipments and lower pension expense.
Lennar Corp. climbed 5.7 percent to $41.35. The second- biggest U.S. homebuilder by market value reported fiscal third- quarter net income of 78 cents a share, exceeding the 67-cent average of analysts in a Bloomberg survey.
U.S. Steel Corp. rose 9.6 percent to a three-year high of $45.40. The steelmaker that has reported five years of losses said the Ontario Superior Court granted protection for its Canada unit. The company also said it canceled $800 million of capital investments in projects in Minnesota and Indiana.
Auxilium Jumps
Auxilium Pharmaceuticals jumped 46 percent to $31.33. Endo International Plc, a maker of pain drugs, said it bid $28.10 a share in cash and stock, a 31 percent premium to yesterday’s closing price, for the maker of men’s health medicines. Endo said its offer didn’t include a deal for QLT Inc., which Auxilium agreed to take control of in June. That purchase hasn’t yet closed. Auxilium today said it has adopted a one-year holder rights plan and confirmed its QLT offer.
Adobe Systems Inc. lost 4.2 percent to $67.73 after reporting third-quarter sales of $1.01 billion. Analysts on average estimated revenue of $1.02 billion. The software maker posted profit before some items of 28 cents a share, exceeding analysts’ projections for 26 cents.
Rackspace Hosting Inc. tumbled 16 percent to $33 after saying it rejected bid offers. The cloud-computing company decided to remain independent after ending a review on strategic options, and rebuffed investor calls to buy back shares, saying it will preserve cash for future acquisitions.
Gogo Inc. advanced 2.8 percent to $18.46 after announcing a partnership with Virgin Atlantic to offer in-flight connectivity services on Virgin’s aircraft.
General Mills Inc. lost 4.3 percent to $50.92 after reporting earnings and sales that missed analysts’ estimates. Revenue at the cereal maker was $4.27 billion, compared with the average analyst estimate of $4.38 billion.