S&P 500 closes at record high

S&P 500 closes at record high
By MIchael Mackenzie in New York
Copyright The Financial Times Limited 2007
Published: July 13 2007 14:00 | Last updated: July 13 2007 21:45


Wall Street shrugged aside a tremor in the credit market this week as leading benchmarks broke free from more than a month of consolidation and entered record territory.

After sharp losses on Tuesday, stocks soared on Thursday and rose further on Friday. For the second straight day, both the S&P 500 index and Dow Jones Industrial Average closed at record highs.

The S&P’s energy, materials and industrials sectors led gains. In contrast, consumer discretionary, and telecoms groups slipped this week.

Amid sharp swings in trading, equity volatility, as measured by the Chicago Board Options Exchange’s Vix index, was 2.6 per cent higher over the week.

For now, equity investors believe the problems in the subprime mortgage market will not hurt the wider economy. In spite of weaker-than forecast national retail sales for June on Friday, much better-than-expected same-store sales at major retailers on Thursday lifted some of the gloom that has pervaded the sector.

“Fear and greed are what drives the market over the short term, but earnings and dividends ultimately matter,” said Anthony Conroy, managing director at BNYConvergEx.

He added that the market was still trading near the low end of its historic earnings multiple and earnings were the catalyst that could take equities higher.

On Friday, the S&P 500 closed up 0.3 per cent at 1,552.50 and also set a new intra-day record high of 1,555.10, a gain of 1.4 per cent this week.

After early weakness, the Nasdaq Composite rose 0.2 per cent to close at 2,707 on Friday, and gained 1.5 per cent this week.

Tech titans, Google and Apple both set new all-time highs on Friday. Google closed up 1.3 per cent at $552.16, after setting a peak of $552.67, while Apple rose 2.7 per cent to $137.73, after making a new high of $137.85.

Setting the pace this week was the Dow with a gain of 2.2 per cent. The Dow closed 0.3 per cent higher on Friday at 13,907.25, after setting an intra-day record high of 13,932.29.

Mr Conroy said now that the market had broken its recent shackles, investors who were not positioned for that move face having to buy back stocks, that could push the market higher.

With the pace of the second-quarter earnings season set to pick up sharply next week, two blue chips, Alcoa and General Electric, have delivered results in line with estimates.

Along with Exxon Mobil, boosted by higher oil prices at 11-month highs, these three Dow stocks set record and 52-week highs on Friday. Exxon rose 4.5 per cent to $90.33 this week and set an all-time high of $90.80, as the company’s market capitalisation exceeded $500bn.

Alcoa gained 13.7 per cent to $47.35 this week and set a high of $47.69 on Friday. Alcoa withdrew its bid for Alcan late on Thursday and announced the resumption of a stock buy-back program that had been halted when the bid for Alcan was made on May 7. Analysts also believe that BHP Billiton may soon launch a bid for Alcoa now that Rio Tinto has made an agreed $44bn bid for Alcan. Alcan rallied 12.7 per cent to $97.50 this week and has more than doubled in value this year.

In earnings, General Electric reported that second-quarter net income rose 9.6 per cent to $5.42bn on Friday, in line with analysts’ estimates. The conglomerate said it would exit its US mortgage business and increase its share repurchase programme this year to $14bn. GE closed 1.3 per cent higher at $39.50, and had earlier set a 52-week high of $40.17.

In other deal news, Gerdau Ameristeel said it was buying Chaparral Steel for $4.22bn. Chaparral rose 10.6 per cent to $83.73.

Huntsman, the chemicals maker, agreed to be bought for $6.5bn by Apollo Management’s Hexion Specialty Chemicals. That trumped a $5.6bn bid by Basell. Huntsman fell 5.4 per cent to $26.49.

On Friday, Energizer agreed to buy Playtex, the maker of feminine care and infant products, for about $1.2bn. Energizer rose 7.5 per cent to $107.67, while Playtex surged 20.8 per cent to $17.97 this week.

In contrast, GE and Abbott Laboratories announced that they were unable to agree on “final terms and conditions” of GE’s proposed $8.13bn deal to buy Abbott’s primary in-vitro and point-of-care diagnostics units. Abbott fell 1 per cent to $53.24.

There was also uncertainty over the planned $25bn buy-out of Sallie Mae. Shares in the student lender plunged nearly 10 per cent on Wednesday, when some of the Wall Street firms involved in the deal said they might back out due to proposed legislation regulating student loans. Sallie was down 7.4 per cent for the week at $53.64.

Profit warnings from retailers such as Home Depot and Sears, down 9.6 per cent to $157.40, sparked worries that the US consumer was starting to slow.Among the better performing retailers, Wal-Mart reported sales growth of 2.4 per cent, against an expected 0.8 per cent, and its stock rose 1.6 per cent to $49.15. Alnylam Pharmaceuticals surged 52.9 per cent to $23.24 this week, after the biotechnology company licensed some of its therapeutic research to Roche, the Swiss drug maker.

NYSE Group rose 9.9 per cent to $83.22 after Lehman upgraded the exchange from “market weight” to “overweight”.