Dow Tops 11,000, Treasuries Rise on Fed Easing Bets

U.S. stocks advanced this week, sending the Dow Jones Industrial Average above 11,000 for the first time since before the May 6 crash, on speculation the Federal Reserve will buy more debt to boost the economy. 

Alcoa Inc. gained 5.4 percent after third-quarter earnings topped analysts’ estimates. Exxon Mobil Corp. and Chevron Corp. rose at least 2.4 percent as commodity producers rallied on bets the Fed will increase asset purchases to pump more cash into the economy. J.C. Penney Co. jumped 18 percent, the most in the Standard & Poor’s 500 Index, after William Ackman’s hedge fund announced it had bought a stake. 

The S&P 500 advanced 1.7 percent to 1,165.15 this week. The Dow rose 176.80 points, or 1.6 percent, to 11,006.48. Both measures closed at the highest levels since May yesterday after the economy lost more jobs than forecast last month, bolstering speculation the central bank will attempt to stoke growth. 

“The key driver has been the prospects of quantitative easing,” said Komal Sri-Kumar, the Los Angeles-based chief global strategist at TCW Group Inc. who helps oversee about $109 billion. “The markets think there could be the increase in money supply coming from the Fed’s renewed purchases of Treasuries. It’s a green signal for investors to take on more risk.” 

More than 40 stocks in the S&P 500 rose to 52-week highs yesterday after the Labor Department said American payrolls fell by 95,000 workers in September, 19 times the median estimate of economists in a Bloomberg survey. Fed Chairman Ben S. Bernanke said on Oct. 4 that the central bank’s first round of large- scale asset purchases aided the economy and that further buying is likely to help more. 

Aluminum

Alcoa jumped 5.4 percent to $12.89 for the biggest increase in the Dow this week. The largest U.S. aluminum producer reported third-quarter earnings excluding certain items of 9 cents a share, beating the 5-cent average estimate of analysts surveyed by Bloomberg.

Material stocks advanced 3.2 percent, the biggest gain out of 10 industries in the S&P 500. Gold climbed for the fourth straight week, while copper rose to a 27-month high. Exxon Mobil Corp. and Chevron Corp. climbed as much as 2.9 percent as crude oil rallied for the third straight week. 

J.C. Penney surged 18 percent to $32.49, the biggest gain in the S&P 500. Pershing Square Capital Management LP, the New York hedge-fund firm led by William Ackman, disclosed a 16.5 percent stake in J.C. Penney, making it the retailer’s largest investor. The third-biggest department-store chain in the U.S. also reported that comparable-store sales climbed 5.1 percent, exceeding analysts’ projections. 

Wind Turbines

General Electric Co. rose 4.7 percent to $17.12 as industrial stocks rallied 2.9 percent. The world’s second- biggest maker of wind turbines agreed to buy oilfield equipment maker Dresser Inc. for $3 billion. 

“When the markets are rallying, the cyclicals tend to do well,” said John Praveen, the Newark, New Jersey-based chief investment strategist at Prudential International Investments Advisers LLC, which oversees $690 billion. “It’s a liquidity driven market. Quantitative easing by the Fed will provide lots of liquidity into the economy that can find its way into the equity market.” 

The S&P 500 Index rallied 8.8 percent last month to erase its 2010 loss. The benchmark for U.S. stocks may surge 13 percent through the end of January, according to Bank of America Corp. 

Strong Finish

“A strong September is usually a prelude to strong year- end finish,” according to David Bianco, the New York-based head of U.S. equity strategy at Bank of America. During “heightened economic and political uncertainty,” the average return from Sept. 30 to Jan. 31 is 13 percent, he wrote in a Oct. 1 note. 

Abercrombie & Fitch Co. gained 14 percent to $42.87. The teen clothing retailer said sales at stores open at least a year rose 13 percent, beating the 3.6 percent average of analysts’ estimates compiled by Retail Metrics Inc. Consumer discretionary companies gained 2.6 percent. 

Adobe Systems Inc. climbed 2.7 percent to $26.99 after surging 12 percent on Oct. 7. Microsoft Corp. Chief Executive Officer Steve Ballmer met with Adobe CEO Shantanu Narayen to discuss a closer collaboration, according to the New York Times. Shares of Adobe pared the weekly gain yesterday after the Wall Street Journal reported speculation the maker of graphic software may be acquired by Microsoft is “nonsense.” 

American Express Co. sank 9.1 percent to $37.99, the worst performer of the 30 companies in the Dow. The New York-based credit-card issuer chose to challenge a U.S. antitrust complaint while larger rivals Visa Inc. and MasterCard Inc. settled the case, no longer barring merchants from steering customers to alternative forms of payment. 

The benchmark index for U.S. stock options ended the week at the lowest level since May 3. The VIX, as the Chicago Board Options Exchange Volatility Index is known, fell the most in five weeks, dropping 8 percent to 20.71. The index, which measures the cost of using options to protect against S&P 500 declines, has fallen 55 percent since this year’s peak in May and is near its 20.41 average over its two-decade history.Source: Bloomberg