NEW YORK – U.S. stocks rose, with the Standard & Poor’s 500 Index rebounding from last week’s decline, as investors weighed prospects for less economic stimulus before this week’s Federal Reserve policy meeting.
Nine of 10 industries in the S&P 500 advanced, with technology and energy stocks rising at least 1.3 percent. Netflix Inc. jumped 6.7 percent after agreeing to a multi-year deal with DreamWorks Animation SKG Inc. to obtain original programming. Micron Technology Inc. advanced 4.5 percent after Citigroup Inc. lifted its price target on the largest U.S. maker of memory chips.
The S&P 500 climbed 1 percent to 1,642.33 at 12:14 p.m. in New York. The Dow Jones Industrial Average rallied 156.03 points, or 1 percent, to 15,226.21. Trading of S&P 500 companies was 10 percent lower than the 30-day average at this time of day.
“There is a lot of pessimism about potential tapering, but it has already been priced into the markets,” Alan Gayle, a senior strategist at RidgeWorth Capital management in Richmond, Va., which oversees about $48 billion of assets, said in a phone interview. “If the Fed does decide to remove some if its support, the truth of matter is, historically, equity markets can survive in a rising rates environment.”
U.S. stocks fell last week as investors speculated whether Fed Chairman Ben S. Bernanke will signal a reduction of stimulus efforts. While the S&P 500 has retreated 1.5 percent from its May 21 record, the day before Bernanke said the central bank could pare stimulus if the U.S. economy improves sustainably, the U.S. equity benchmark rallied an average 16 percent over two years the last four times the central bank started raising interest rates, according to data compiled by Bloomberg.
Fed meeting
The Fed will hold its two-day policy meeting beginning tomorrow, with Bernanke scheduled to speak after the central bank’s decision on June 19. Investors have been watching economic data to determine whether growth is strong enough to prompt the bank to scale back stimulus measures.
“All eyes are going to continue to be on the Fed, but today can be a little more attributed to a buy-on-the-dip mentality that’s permeated the market,” Robert Pavlik, chief market strategist at Banyan Partners LLC, said by phone. His firm manages about $1.4 billion. “The S&P 500 was testing the lower end of its trading range, hitting around the 50-day moving average. That’s certainly giving the market a reason a bounce.”
Moving average
The equity index recovered last week from a brief dip below its average price in the past 50 days, a measure that’s watched by some analysts to gauge the market’s trend. The S&P 500 has stayed above the threshold on all trading days so far this year except for four.
A report today showed manufacturing in the New York region felt more optimistic in June even as orders, sales and employment dropped. The Federal Reserve Bank of New York’s general economic index climbed to 7.8 this month, the highest reading since March, from minus 1.4 in May. Readings of greater than zero signal expansion in New York, northern New Jersey and southern Connecticut.
Technology shares paced gains among U.S. equities today, surging 1.4 percent. Cisco Systems Inc. jumped 3.1 percent to $24.83 to lead gains in the Dow. Energy producers rose 1.3 percent as oil fluctuated near a nine-month high. Phone stocks were the only group to decline, falling 0.1 percent.
Netflix, DreamWorks
Netflix, the biggest gainer in the S&P 500 this year, rallied 6.7 percent to $228.30. The dominant subscription video- streaming service agreed to a deal with DreamWorks to obtain original programming to lure subscribers. It is the largest contract for original content in the history of Netflix, the Los Gatos, California-based company said.
Micron advanced 4.5 percent to $13.34, the highest since July 2007. Citigroup lifted its price target on the largest U.S. maker of memory chips to $19. While shares are up 101 percent year-to-date through June 14, analyst Glen Yeung cited the acquisition of Japan’s Elpida Memory Inc., which is expected to close in the first half of the year, and continued increase in prices for memory chips.
The S&P Supercomposite Homebuilding Index jumped 2.2 percent after a report showed confidence among U.S. homebuilders surged in June to the highest level in seven years. Toll Brothers Inc. rallied 3.3 percent to $33.96, while KB Home increased 3 percent to $22.29.
Air show
Boeing Co. added 1.5 percent to $103.32, the highest since October 2007. Th planemaker received on the first morning of the 50th Paris Air Show in France an order from General Electric Co.’s GE Capital Aviation Services leasing division for 10 of the largest 787 Dreamliners valued at about $2.9 billion.
Lockheed Martin Corp. increased 0.9 percent to $108.68. S&P upgraded its credit outlook on the maker of F-35 fighters to stable from negative after the close of markets on June 14, citing the company’s ability to generate strong free cash flow even as U.S. arms spending declines.
Lockheed expects to boost output of F-35s to more than 100 planes annually by about 2020 from 36 aircraft this year, according to Steve O’Bryan, Lockheed Martin’s vice president for the F-35 program. Higher building rates will allow for cost reductions of about 30 percent, he said in an interview at the Paris Air Show.
Volatility bets
The Chicago Board Options Exchange Volatility Index, or VIX, slipped 1.5 percent to 16.90 today. The gauge climbed to an almost four-month high last week, jumping 13 percent in the five trading days to bring gains from a six-year low in March to 50 percent.
Traders are boosting bets that U.S. stock-market volatility will increase during the next three months, sending options prices to the highest in 1 1/2 years relative to six-month contracts, on signs the Fed may begin withdrawing stimulus.
Implied volatility for three-month options on the S&P 500 has risen 33 percent to 15.6 since its March low, according to data compiled by Bloomberg on contracts that can be exercised near the index’s current level. The gauge of costs for six-month ones rose 23 percent to 16.2 since then. The ratio between the two measures reached 0.98 last week, the highest since December 2011.
“Investors expect a pick-up in volatility over the summer and Fed tapering is a big part of the concern,” Sean Heron, who manages options strategies at Glenmede Trust Co., said in an interview on June 14. The Philadelphia-based firm oversees about $23 billion. “Although the outcome of tapering may be further away, the market may start to anticipate the effects to start this summer.”
