16/09/2013 - 06:39

US stocks surge as Syria anxiety ebbs

16/09/2013 - 06:39


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From Friday September 13.

It was a busy week of business news that included a record bond offering, an Apple product launch, and even some substantial tinkering with the hallowed Dow Jones Industrial Average.

Yet in many ways, US markets were most influenced by what did not happen, namely a US military strike against Syria.

Markets had been shadowed in recent weeks by fear of a US attack on Syria.

But US stocks rallied this week as the country and its allies put plans for a military strike on the back burner in response to a Russian-led proposal to put Syria's chemical weapons under international control.

"The big driver is a Syria relief story," said Greg Peterson, a managing director at Ballentine Partners.

"Investors were able to exhale knowing the Syria scenario wasn't a powder keg getting ready to explode," said Jack Ablin, chief investment officer at BMO Private Bank.

The stock indices scored solid weekly gains.

The Dow Jones Industrial Average jumped 453.56 (3.04 per cent) to 15,376.06, its strongest rally since January.

The broad-based S&P 500 tacked on 32.82 (1.98 per cent) at 1,687.99, while the tech-rich Nasdaq Composite Index rose 62.17 (1.70 per cent) to 3,722.18.

Markets eagerly awaited the Federal Reserve's two-day monetary policy meeting that begins on Tuesday.

The Federal Open Market Committee is widely expected to announce the first reduction in the Fed's $US85 billion ($A92.30 billion)-per-month bond-buying program.

"For the moment, the Federal Reserve's announcement is pretty much all that matters," said Dan Greenhaus, chief global strategist at BTIG.

The consensus among investors has shifted somewhat in recent weeks and the Fed is now thought to be a "little less aggressive" on tapering compared with earlier, Greenhaus said.

Greenhaus expects the Fed to trim $US8-10 billion from the program.

Perhaps the week's biggest highlight was Verizon's successful $US49 billion bond sale that smashed a prior $US17 billion all-time record set by Apple in April.

The funds will help finance Verizon's $US130 billion purchase of Vodafone's stake in their Verizon Wireless joint venture.

Underwriters for the massive deal doubled the size from initial plans in response to heavy demand.

Investors ate up the relatively generous coupon, which included a 5.185 per cent yield on 10-year bonds.

Dell shareholders finally endorsed a proposal to go private after activist Carl Icahn ended his challenge to founder Michael Dell's leveraged buyout.

Dell will now attempt to boost its services and software businesses to make up for a declining personal computer business.

Twitter, the fast-growing social media company, announced, in a tweet, that it has submitted papers for the most hotly anticipated initial stock offering in the tech sector since Facebook's IPO last year.

Dow index owner S&P Dow Jones Indices announced that it is replacing three stocks in the 30-company index with stocks that had higher value or provided more market diversity.

The dropped companies - Alcoa, Hewlett-Packard and Bank of America - will be replaced by Goldman Sachs, Visa and Nike, effective September 23.

BMO's Ablin labelled all of these developments "constructive" for markets: The Verizon bond sale shows "enormous" market liquidity, the Dell decision to go private resolves a long-running takeover battle and the Twitter IPO plan points to growth.

And the shift in the Dow "probably does increase the upside of the index" in the long term, Ablin said.

The buzz generated by Verizon and others helped offset Apple's disappointing launch of two iPhone models.

Analysts faulted the lower-priced iPhone 5C as still too costly to succeed in emerging markets and expressed disappointment at the lack of an announcement of a long-awaited deal with China Mobile.

Apple shares shed more than 8 per cent after the Tuesday launch to close the week at $US464.90.

The week ahead's economic calendar features reports on industrial production (Monday), housing starts (Wednesday) and existing-home sales (Thursday).

But the spotlight will be on Wednesday's Fed monetary policy meeting.

In addition to the customary post-meeting statement, the central bank will release updated forecasts on growth, unemployment and inflation.

Markets will be fixated on Fed Chairman Ben Bernanke's post-meeting news conference, hoping for clues on the direction of monetary policy and interest rates.

The Fed should dominate next week's news unless Syria returns to the forefront.

"If it looks like a diplomatic solution in Syria is going to fail, then I think markets will look at that negatively and that will overwhelm the Fed," said Peterson of Ballentine Partners.


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