Home' Trinidad and Tobago Guardian : June 22nd 2014 Contents JUNE 22 • 2014 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
STOCKS | SBG11
The US stock market is back to
setting records. After treading
water for most of March and
April, stocks are nudging deep-
er into record territory and are
closing in on milestones with
lots of zeros attached to them. The Dow Jones
industrial average is within 53 points of 17,000
while the Standard & Poor s 500 is just shy
of 2,000 after rising 6.0 per cent this year.
A harsh winter in the US that hobbled
growth made investors cautious. There were
also worries about the conflict in Ukraine and
slowing growth in China, the world s second-
But now the economy appears to be on track
again, and investors are rediscovering their
appetite for stocks.
While 17,000 would be the first 1,000-point
marker crested this year, the Dow had two in
2013. It closed above 15,000 for the first time
on May 7, then above 16,000 on Nov. 21,
during a year when the blue-chip index rock-
eted 27 per cent.
That double milestone was a long time com-
ing, though. The Dow had finished above
14,000 six years earlier, in July 2007, just before
the Great Recession.
In 2014, here are some of the factors driving
stocks toward new milestones:
Recent good news on manufacturing and
hiring has boosted confidence in the econo-
my.Manufacturing is expanding at a healthy
pace, and the service industry continues to
grow, according to surveys released by the
Institute for Supply Management earlier this
US employers added 217,000 jobs to their
payrolls in May, the fourth consecutive month
of solid job gains. The number of Americans
filing for unemployment benefits has also
dropped close to the levels seen before the
recession began in December 2007.
More jobs should put more money into con-
sumers pockets. That leads to greater demand
and greater investment by companies, creating
a virtuous circle, says Brad Sorensen, director
of market and sector research for Charles
"It s in the early stages, but we re starting
to finally see a snowball effect where everything
builds on itself," Sorensen says.
Corporate profits are also rising. Earnings
reports start to come in next month, and
investors expect that second-quarter profits
at US companies will be up 5.4 per cent from
a year ago, according to FactSet.
The market for mergers and acquisitions is
heating up. Although the number of corporate
deals is marginally lower than it was at this
point last year, the transactions getting done
The value of corporate deals has surged 62
per cent to US$798 billion this year, from
US$494 billion a year ago, even though the
number of acquisitions is about 3.0 per cent
lower than last year, according to Dealogic.
M&A deals lift stock prices because the
acquirer typically pays a premium for the com-
pany that it s buying, and if there are multiple
bidders, prices are pushed even higher.
The battle for Hillshire Brands, maker of
Jimmy Dean sausages, is a good example.
Tyson Foods won a bidding war to buy Hill-
shire for US$8.6 billion on Monday. The com-
pany ended up paying US$63 a share for the
food company about two weeks after rival
poultry producer Pilgrim s Pride made an
initial bid of US$45 a share. Before the bidding
had started, Hillshire s stock was trading at
Comcast s US$45 billion deal to buy Time
Warner Cable, and AT&T s bid for DirecTV
are among other big deals this year, and online
travel company Priceline said recently it was
buying the online restaurant reservation com-
pany OpenTable for US$2.6 billion.
More central bank stimulus:
Central banks around the world are stepping
in to bolster struggling national economies.
The latest big move came in Europe, when
The European Central Bank cut interest rates
and said it was ready to pump more money
into the region s financial system two weeks
ago. The bank wants to head off falling prices
in the 18 countries that use the euro and
When people expect lower prices, or defla-
tion, they tend to put off purchases and invest-
ment, choking off growth. That is a disaster
scenario the ECB wants to make sure does
ECB President Mario Draghi also pledged
to do more if it was needed, raising the pos-
sibility that the bank will pursue a big Federal
Reserve-style bond-buying programme in the
future. In the US, the Fed s bond-buying pro-
gramme has pushed up both bond and stock
As investors anticipated the ECB s move, a
chain reaction was unleashed in the world s
"Lower rates in Europe are going to tend to
drag rates in the US down and that, other
things being equal, is going to make equities
more attractive," says David Lafferty, chief
market strategist at Natixis Global Asset Man-
agement, an asset manager.
Investors bought European bonds, pushing
down yields. That made US Treasury note
yields seem more attractive by comparison,
luring buyers to the US. The yield on the 10-
year Treasury note dropped from 3 per cent
at the start of the year, to as low as 2.44 per
cent May 28 as US government debt rallied.
Lower long-term interest rates in the US
should support the economic recovery by
keeping mortgage rates low and encouraging
These lower interest rates have had a side
effect of pushing up stock prices, both in the
US and elsewhere. When bond yields are so
low across the world, stocks look cheaper by
comparison. This in turn forces investors into
the stock market instead of the bond market.
The ECB stimulus should support growth
in Europe and benefit US companies over-
The stimulus is "the first tangible step that
Draghi has taken to really drive European
growth," says Lafferty.
The world outside
A contraction in China s manufacturing sec-
tor rattled stock markets at the start of the
year, and other emerging market economies
appeared on the brink of turmoil as their cur-
rencies plunged against the dollar.
Russia s annexation of the Crimea region
in Ukraine in March also unsettled investors,
who feared that the conflict would escalate.
Those worries have eased for now. China s
manufacturing slump appears to have bot-
tomed out, and tensions between Russian and
Ukraine, while still simmering, haven t boiled
over into a wider conflict.
One place that could become a major prob-
lem for investors is Iraq. The recent violence
in the region has some investors worried that
Iraq could break out into another civil war.
With Iraq having one of the largest proven
reserves of oil, the violence could further drive
up oil prices, causing gas prices to rise.
Stocks held on to small gains Friday, deliv-
ering the latest record high closes for major
indexes. The Dow Jones industrial average
closed at a new high, while the Standard &
Poor s 500 index marked its third in as many
The major stock indexes all finished ahead
for the week. The S&P 500 has finished higher
five out of the last six weeks.
The Dow Jones industrial average rose
25.62 points, or 0.2 per cent, to 16,947.08.
The Standard & Poor s 500 index gained
3.39 points, or 0.2 per cent, to close at
The Nasdaq composite index added 8.71
points, or 0.2 per cent, to 4,368.04.
For the week:
The Dow is up 171.34 points, or about
1 per cent.
The S&P 500 is up 26.71 points, or 1.4
The Nasdaq gained 57.38 points, or 1.3
For the year:
The Dow is up 370.42 points, or 2.2 per
The S&P 500 index is up 114.51 points,
or about 6.2 per cent.
The Nasdaq is up 191.45 points, or 4.6
Energetic stock market
pushes toward milestones
In this June 18, 2014 file photo, specialist Peter Giacchi calls out prices during the IPO of Foresight Energy on the floor of the New York Stock
Exchange. After treading water for most of March and April, stocks are nudging deeper into record territory and are closing in on milestones with
big zeros attached to them. The Dow Jones industrial average is within 100 points of 17,000 while the Standard & Poor's 500 is just shy of 2,000
after rising 6.0 per cent this year. AP
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