Stocks rose again Friday, extending the Thursday’s rally, as investors bet that the partial government shutdown and the battle over a looming U.S. default would finally be settled.
The Dow Jones industrial average (^DJI) gained 111 points, or 0.7 percent, to 15,237, the Standard Poor’s 500 index (^GPSC) rose 10 points, or 0.6 percent, to 1,703, and the Nasdaq composite index (^IXIC) rose 31 points, or 0.8 percent, to 3,791.
One motivation for investors Friday was the chance an agreement could come over the weekend, when the Senate is expected to vote on extending the federal borrowing limit through January 2015.
Energy stocks led the SP 500 up after the Environmental Protection Agency proposed lowering the required amount of ethanol to be blended into U.S. gasoline after Thursday’s market close.
Tesoro (TSO) led the sector, rising 3.8 percent to $45.18 despite a report Thursday from Reuters that a Tesoro pipeline spilled more than 20,000 barrels of crude oil onto a North Dakota farm.
In economic news, the University of Michigan index of consumer sentiment fell in October to its weakest in nine months and was below expectations.
In commodities trading, benchmark crude for November delivery fell $1.12 or 1 percent to $101.89,
while gold, a popular choice for some investors during times of uncertainty, fell $28.70, or 2.2 percent, to $1,268.20 an ounce Friday. That’s gold’s lowest price since late July.
More Stocks in the News:
- JPMorgan Chase (JPM) ended the day flat at $52.52 after adjusted earnings beat expectations, despite absorbing a $9.2 billion reserve for litigation expenses.
- Wells Fargo (WFC) gained 2 cents to $41.46, despite reporting lower third-quarter revenue as mortgage activity slowed.
- Gap (GPS) sank 6.7 percent to $36.82 after it reported a 3 percent drop in sales for September. Analysts had expected a gain of 1.6 percent. Gap was the biggest decliner in the SP 500.
- Safeway (SWY) rose 6.9 percent to $33.75, the biggest gain in the SP 500 index. The grocery store operator said late Thursday that it plans to sell its Chicago-area Dominick’s stores, allowing it to concentrate on its more profitable business.
- Micron Technology (MU) fell 8.6 percent to $16.84 after the flash memory maker’s quarterly profit left some investors wanting more.
- Shares of Eli Lilly and Co. (LLY) slid 0.6 percent to $48.88 after a Jeffries analyst lowered his rating on the shares, calling them “our least preferred U.S. stock.” The analyst lowered his rating on the stock to “underperform” from “hold” and dropped his price target on the shares to $40 from $49.
- Spirit Airlines (SAVE) soared 14.9 percent to $39.12 and briefly reached an all-time high, as the company lifted its third-quarter outlook following strong September traffic results.
- Ariad Pharmaceuticals (ARIA) plunged for the second time this week, after the Food and Drug Administration said it was investigating reports of dangerous blood clots with the company’s leukemia drug disclosed on Wednesday. Ariad shares fell $1.16 or 21.4 percent, to $4.25.
What to Watch Monday:
- Monday is Columbus Day, a federal holiday. The bond market will be closed, but stock and commodities markets will be open.
–Compiled from staff and wire reports.
Warren Buffett is a great investor, but what makes him rich is that he’s been a great investor for two thirds of a century. Of his current $60 billion net worth, $59.7 billion was added after his 50th birthday, and $57 billion came after his 60th. If Buffett started saving in his 30s and retired in his 60s, you would have never heard of him. His secret is time.
Most people don’t start saving in meaningful amounts until a decade or two before retirement, which severely limits the power of compounding. That’s unfortunate, and there’s no way to fix it retroactively. It’s a good reminder of how important it is to teach young people to start saving as soon as possible.
Future market returns will equal the dividend yield + earnings growth +/- change in the earnings multiple (valuations). That’s really all there is to it.
The dividend yield we know: It’s currently 2%. A reasonable guess of future earnings growth is 5% a year. What about the change in earnings multiples? That’s totally unknowable.
Earnings multiples reflect people’s feelings about the future. And there’s just no way to know what people are going to think about the future in the future. How could you?
If someone said, “I think most people will be in a 10% better mood in the year 2023,” we’d call them delusional. When someone does the same thing by projecting 10-year market returns, we call them analysts.
Someone who bought a low-cost SP 500 index fund in 2003 earned a 97% return by the end of 2012. That’s great! And they didn’t need to know a thing about portfolio management, technical analysis, or suffer through a single segment of “The Lighting Round.”
Meanwhile, the average equity market neutral fancy-pants hedge fund lost 4.7% of its value over the same period, according to data from Dow Jones Credit Suisse Hedge Fund Indices. The average long-short equity hedge fund produced a 96% total return — still short of an index fund.
Investing is not like a computer: Simple and basic can be more powerful than complex and cutting-edge. And it’s not like golf: The spectators have a pretty good chance of humbling the pros.
Most investors understand that stocks produce superior long-term returns, but at the cost of higher volatility. Yet every time — every single time — there’s even a hint of volatility, the same cry is heard from the investing public: “What is going on?!”
Nine times out of ten, the correct answer is the same: Nothing is going on. This is just what stocks do.
Since 1900 the SP 500 (^GSPC) has returned about 6% per year, but the average difference between any year’s highest close and lowest close is 23%. Remember this the next time someone tries to explain why the market is up or down by a few percentage points. They are basically trying to explain why summer came after spring.
Someone once asked J.P. Morgan what the market will do. “It will fluctuate,” he allegedly said. Truer words have never been spoken.
The vast majority of financial products are sold by people whose only interest in your wealth is the amount of fees they can sucker you out of.
You need no experience, credentials, or even common sense to be a financial pundit. Sadly, the louder and more bombastic a pundit is, the more attention he’ll receive, even though it makes him more likely to be wrong.
This is perhaps the most important theory in finance. Until it is understood you stand a high chance of being bamboozled and misled at every corner.
“Everything else is cream cheese.”