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U.S. stocks climb with Macy's; Dow and S&P 500 set record finishes

U.S. stocks climbed on Wednesday, with the Dow and the S&P 500 finishing at records, as investors embraced consumer-discretionary shares after upbeat earnings from retailing giant Macy's helped foster optimism about holiday shopping.

"The Macy's number is driving the market. Their earnings number coming out is supportive as there is a lot riding on the holiday season," said Chris Gaffney, EverBank senior market strategist. "It builds on last week and other retailers," said Gaffney, listing the Gap, which on Friday reported solid gains in October sales and offered a positive third-quarter outlook, and J.C. Penney, which the prior day reported a main sales barometer rose in October for the first time in almost two years.

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Macy's shares jumped after the retailer reported third-quarter earnings and revenue that surpassed forecasts.

Erasing a 78-point deficit, the Dow Jones Industrial Average rose to an intraday record of 15,822.98, before finishing with a gain of 70.96 points, or 0.5 percent, at 15,821.63, above its prior closing record set Monday, with Microsoft and Home Depot pacing blue-chip gains that included all but six of its 30 components.

The S&P 500 also advanced, adding 14.31 points, or 0.8 percent, to 1,782, above its Oct. 29 closing record and Oct. 30 intraday record. Consumer discretionary and technology were the best performing of its 10 major industry groups.

The Nasdaq was the first of the three benchmarks to step into positive terrain, after closing fractionally higher on Tuesday. On Wednesday it jumped 45.66 points, or 1.2 percent, to end at 3,965.58.

Advancers outdid decliners more than 2-to-1 on the New York Stock Exchange, where 696 million shares traded. Composite volume topped 3.3 billion.

Starbucks fell after the coffee chain revised its fourth-quarter results to show a loss following a court ruling Tuesday that awarded Kraft nearly $2.8 billion dollars. The money goes to Mondelez International, the grocery business that spun off last year, taking the Kraft name with it. Tesla Motors gained after co-founder Elon Musk said the electric-car maker would not recall its Model S after fires involving the sedan.

Of the 453 companies in the S&P 500 that have reported third-quarter earnings to date, 67.1 percent have beaten expectations, 9.9 percent were in line and 23 percent came in below expectations, according to Greg Harrison, a senior research analyst at Thomson Reuters. In a typical quarter, going back to 1994, 63 percent beat estimates, 17 percent matched and 21 percent missed, he said.

The top line was a slightly different story, with 53.2 percent reporting revenue above expectations and 46.8 percent missing, versus 61 percent beating and 39 percent missing in a typical quarter going back to 2002, Harrison noted.

The U.S. dollar edged lower against other global currencies and the yield on the 10-year Treasury note, used in figuring mortgages and other consumer loans, also declined, down 5 basis points at 2.73 percent.

The price of crude-oil futures rose 84 cents, or 0.9 percent, to $93.88 a barrel; gold futures fell for a fifth day, off $2.80, or 0.2 percent, to $1,268.40 an ounce.

Data released Wednesday by the Mortgage Bankers Association had applications for U.S. home loans dipping last week, although the prior week's fall was revised to less of a drop than initially reported.

On Wednesday, the Bank of England updated its growth inflation and unemployment forecasts, raising expectations that it could raise interest rates sooner than expected. European and Asian equities sold off after the outcome of China's Communist Party meeting proved disappointing to those looking for reforms to content with the nation's decelerating growth.

"We saw a pretty awful day in Asia, and Europe is down one percent pretty much across the board. The Bank of England is one step closer to changing their policy, and combine that with what can possibly happen with the Fed, and England can get to a seven percent unemployment rate," said Peter Boockvar, chief market analyst at the Lindsey Group. "Combined with Asia and the poor action in Europe, the market is going to take a breather."

"Just over the past week, we've had underlying divergences taking place," said Boockvar, who noted that the recent under performance by the Nasdaq Composite and the Russell 2000. "Where it leads we don't know," he added.

Many economists and market strategists believe the Fed will likely reduce its $85 billion in monthly asset purchases at its March meeting. Data coming this week on weekly jobless claims and manufacturing activity in the New York region could be factors in central-bank policy decisions.

On Thursday, Fed Vice Chairman Janet Yellen testifies before the Senate Banking Committee as part of her confirmation hearing to replace Ben Bernanke as chairman. Also Thursday, Fed Bank of Philadelphia President Charles Plosser will talk about monetary policy.

—By CNBC's Kate Gibson

Coming Up This Week:

WEDNESDAY: Earnings from Cisco Systems, NetApp, NetEase, Envision Healthcare, Kinross Gold, SeaWorld

THURSDAY: International trade; jobless claims; productivity and costs; Fed's Plosser speaks; natural gas inventories; oil inventories; 30-year bond auction; Earnings from Wal-Mart, Helmerich & Payne, Kohl's, Tyco, Viacom, Vivendi, Agilent, Applied Materials, Nordstrom

FRIDAY: Empire State manufacturing survey; import/export prices; industrial production; wholesale trade

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