U.S. Stocks Advance on Speculation of Easing Tension in Ukraine

Aug 14, 2014 4:42 pm ET

Aug. 14 (Bloomberg) -- U.S. stocks rose, sending the Standard & Poor’s 500 Index to a two-week high, as speculation the crisis in Ukraine won’t escalate overshadowed weaker-than- estimated economic employment data.

Kohl’s Corp. added 3.3 percent to a four-month high after quarterly results beat estimates. Wal-Mart Stores Inc. gained 0.5 percent after reporting stagnant same-store sales and lowering its profit forecast, while Cisco Systems Inc. declined 2.6 percent after forecasting little to no sales growth. Warren Buffett’s Berkshire Hathaway Inc.’s Class A shares traded above $200,000 for the first time.

The S&P 500 added 0.4 percent to 1,955.18 at 4 p.m. in New York, the highest since July 30. The index has advanced 1.2 percent this week. The Dow Jones Industrial Average rose 61.78 points, or 0.4 percent, to 16,713.58. About 4.8 billion shares changed hands on U.S. exchanges, the slowest day since July 3.

“The market is ebbing and flowing off of geopolitical news, it’s been all quiet in the past 24 hours, and that has given a positive push to the market today,” Chad Morganlander, a money manager at St. Louis-based Stifel, Nicolaus & Co., which oversees about $160 billion, said in a phone interview. “The overall jobs market in the U.S. remains bullish, but there is somewhat cautious tone on the European economy.”

Equity futures and European stocks erased earlier losses after President Vladimir Putin said Russia will do everything it can to stop the conflict in eastern Ukraine. Stocks had slumped after data showed the euro area’s recovery unexpectedly stalled in the second quarter after its three biggest economies

Fed Watch

Prospects of the euro-region’s economy slipping back into recession have fueled speculation the European Central Bank may boost stimulus measures, while U.S. economic strength has created concern that the Federal Reserve may be forced to act on rates sooner than anticipated.

The U.S. central bank remains on pace to wind down its monthly bond purchases in October. Fed Chair Janet Yellen has said officials will keep the benchmark rate low for a “considerable time” after the bond buying ends.

The S&P 500 reached a record on July 24 before sliding as much as 3.9 percent as President Barack Obama authorized air strikes against militants in Iraq and concern grew that fighting in Ukraine would disrupt world trade. The gauge closed 1.7 percent below its all-time high.

Data today showed applications for unemployment benefits in the U.S. rose more than forecast last week, interrupting a steady decline to pre-recession lows. Jobless claims climbed by 21,000 to 311,000 in the period ended Aug. 9, the highest in six weeks, a Labor Department report said.

Shake Up

“The jobless claims data may shake things up in the market a little bit, but we have to factor in some volatility in the summer jobless claims numbers,” John Manley, who helps oversee about $233 billion as chief equity strategist for Wells Fargo Funds Management in New York, said in a phone interview. “Even if the jobless claims numbers are higher than expected, this negativity can be overshadowed by the fact that rates will remain lower.”

A report yesterday showed retail sales were little changed in July, the worst performance in six months, as car demand slowed and tepid wage growth restrained U.S. consumers. Home Depot Inc. to Target Corp. and Gap Inc. are among retailers in the S&P 500 that report earnings in the next week.

Wal-Mart gained 0.5 percent to $74.39. The world’s largest retailer said sales at stores open at least a year were stagnant in the last quarter. The company cut its 2014 profit forecast because of higher health-care costs and slow traffic at its supercenters.

Kohl’s, Cisco

Kohl’s advanced 3.3 percent to $56.91, the highest since April. The department-store chain posted second-quarter profit of $1.13 per share, more than the $1.07 projected by analysts.

Cisco slipped 2.6 percent to $24.54 for the biggest drop in the Dow. The world’s largest networking-equipment maker forecast adjusted earnings of 51 cents to 53 cents a share, compared with the 53-cent average analyst projection. Cisco will also take a charge of as much as $700 million to cut 6,000 jobs.

About 75 percent of the S&P 500-listed companies that have posted results this season have beaten analysts’ estimates, while 65 percent have exceeded sales projections, data compiled by Bloomberg show.

Profit for members of the equity benchmark probably climbed 9.7 percent in the second quarter, while sales increased 4.3 percent, according to analysts’ estimates compiled by Bloomberg. The S&P 500 trades at 16.3 times the projected earnings of its members, down from a multiple of 16.7 in July.

Moving Average

The equities benchmark has been trading below its 50-day moving average of 1,956.8 for the past 11 periods. Since early 2013, it has dipped below that measure while remaining above its 200-day average on six occasions, Terry Sandven, chief equity strategist at Minneapolis-based U.S. Bank Wealth Management, which oversees $124 billion, said in a note to clients. Each time, the gauge rebounded to continue its upward ascent, Sandven wrote.

The Chicago Board Options Exchange Volatility Index, which usually moves in the opposite direction to the S&P 500, slid 3.7 percent to 12.42 today in its fifth day of declines, the longest losing streak since May. The gauge has lost 25 percent during the slump.

Nine of the 10 main S&P 500 groups advanced today, with health-care and utilities stocks rising at least 0.9 percent for the best performances.

Perrigo Co., a maker of generic drugs, added 7.3 percent for the biggest advance in the S&P 500 after it reported adjusted fourth-quarter earnings that topped estimates.

Avago Technologies Ltd. jumped 2.6 percent to $73.84. The company agreed to sell its Axxia networking business to Intel Corp. for $650 million.

Berkshire Hathaway Class A shares advanced 1.6 percent to $202,850, an all-time high. The stock traded above $200,000 for the first time, further validating Buffett’s vision for building wealth at the company he’s run for almost five decades.

--With assistance from Sofia Horta e Costa in London and Joseph Ciolli and Noah Buhayar in New York.