U.S. stocks rally on Fed minutes, Tiffany earnings, potential tobacco merger

(Source: www.tiffany.com)
(Source: www.tiffany.com)

U.S. stocks advanced Wednesday as Tiffany & Co. posted strong earnings, tobacco companies Lorillard Inc. and Reynolds American Inc. discussed a merger deal and Federal Reserve minutes from the latest policy meeting eased investor concerns.

Market strength following the minutes reflected “most traders’ notion that Fed officials are still approaching monetary policy from a dovish position and that a hike in interest rates isn’t imminent,” said Nate Kelley, associate economist at Moody’s Analytics.

The Dow Jones Industrial Average rose 158.75 points, or 0.97 percent, its biggest one-day percentage jump since mid-April, to close at 16533.06. The S&P 500 index gained 15.2 points, or 0.81 percent, to close at 1888.03. The Nasdaq Composite Index advanced 34.65 points, or 0.85 percent, to close at 4131.54. The yield on the 10-year Treasury note rose 0.02 percentage point to yield 2.53 percent.

Lorillard Inc., the third-largest manufacturer of cigarettes in the U.S., jumped 10.4 percent to close at $62.63 per share, a record high, after Reuters reported Reynolds American Inc., the second-largest U.S. tobacco company, is in late-stage talks to buy the company. Reynolds advanced 4.38 percent to close at $59.77 per share, also a record high.

Tiffany & Co., the world’s second-largest luxury jewelry retailer, rose 9.15 percent to close at $86.15 per share, the highest since Dec. 31, 2013, after posting a 50 percent increase in first-quarter earnings that exceeded analysts’ expectations and raised its earnings forecast for the year.

Netflix Inc., the world’s largest Internet subscription service, rose 5.09 percent to close at $322.04 per share, following the announcement it plans to expand to Germany, France and four other European countries this year, marking its biggest expansion in almost three years.

TJX Cos., owner of the T.J. Maxx discount chain, rose 4.91 percent to close at $56.6 per share, a rebound from its 7.3 percent drop Tuesday after reporting worse-than-expected sales and the biggest decline in earnings in more than five years.

Facebook rose 3.3 percent after introducing a new way to share TV, music and movies.

The Federal Open Market Committee released minutes from its April meeting that said while recent indicators reflected a rebound in the economy, “it was too early to confirm that the bounceback in economic activity would put the economy on a path of sustained above-trend economic growth.”

Fed policy-makers discussed the downside risks to the economy of a slowdown in the housing sector or potential international developments, such as a further slowing of growth in China or an increase in geopolitical tensions regarding Russia and Ukraine.

“There weren’t any surprises in the FOMC minutes,” said Kelley. “It’s ‘steady as she goes’ for monetary policy right now, with the Fed on track to shave $10 billion from asset purchases monthly as long as the labor market continues to improve and inflation remains under wraps.”

At the conclusion of its latest meeting April 30, the FOMC announced a fourth consecutive tapering of its bond buying. Fed Chair Janet Yellen testified to the Joint Economic Committee on May 7 that the Fed will probably end bond-buying in the fall if the labor market continues to improve.

“It still looks like late 2015 is a good bet for the Fed to begin normalizing rates, though communicating its exit strategy will be crucial as the zero-hour approaches,” Kelley said.

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