Economic growth put investors into a holiday mood

U.S. Stocks Rise to Records as GDP Growth Tops Estimates

The Standard & Poor’s 500 Index has capped its biggest weekly gain since October, as data showing faster-than-estimated growth boosted confidence in the world’s largest economy.

The S&P 500 added 0.5% to a record 1,818.32 Friday. The Dow Jones Industrial Average rose 42.06 points, or 0.3%, to 16,221.14, also an all-time high. About 9.2 billion shares changed hands on U.S. changes in the busiest trading since June as futures and options contracts expired today in a process known as quadruple witching and the operator of the S&P 500 rebalanced the index in a quarterly move to adjust member weightings.

“The market is feeling somewhat confident,” said Robert Pavlik, chief market strategist in New York at Banyan Partners, which manages about $4.5 billion. “It’s encouraging as an investor and consumer to see GDP get up to these levels. GDP reaching 4% makes you feel good about the economy and where we’re headed.”

The S&P 500 rose 2.4% this week, halting a string of two weekly declines and erasing a loss for the month, after the Federal Reserve’s decision to slow the pace of its stimulus boosted investor confidence that the recovery in the world’s largest economy is on course. The Dow’s weekly advance of 3% was its biggest since September.

GDP EXPANSION

Data Friday showed the rate of expansion in the third quarter was faster than previously estimated as consumers stepped up spending on services such as health care and companies invested more in software. Gross domestic product climbed at a 4.1% annualized rate, the strongest since the final three months of 2011 and up from a previous estimate of 3.6%, Commerce Department figures showed.

“This revised GDP number was really positive,” Colleen Supran, a principal at San Francisco-based Bingham, Osborn & Scarborough, which manages about $3 billion, said in a phone interview. “It helps complete the story on what the Fed did this week and that is, the Fed has some belief that the economy is getting close to being able to stand on its own.”

The S&P 500 has rallied 27% so far in 2013, on course for its best performance since 1997. Three rounds of central-bank bond purchases have helped propel the equity benchmark 169% higher from a 12-year low in 2009.

The Fed will probably reduce its bond purchases by $10 billion in each of its next seven meetings before ending the program in December 2014, according to the median forecast in a Bloomberg survey of 41 economists conducted on Dec. 19.

VOLATILITY GAUGE

The Chicago Board Options Exchange Volatility Index (VIX) dropped 2.5% Friday to 13.79. The gauge of S&P 500 options known as the VIX fell 13% this week.

Announced index changes, such as the addition of Facebook Inc.’s inclusion in the S&P 500, took effect after the markets closed.

Money managers needed to buy and sell about $13.8 billion of shares as they shuffled their funds to mimic changes in the S&P 500 quarterly rebalance, according to estimates from Howard Silverblatt, a senior index analyst at S&P Dow Jones Indices in New York. He forecast utility companies will see the biggest increase in their representation while the weighting of consumer staples will drop the most.

Nine of the 10 S&P 500 main industries advanced. Utility and technology shares rose more than 0.8% to lead gains. Phone stocks fell 0.6% for the only decline.

(Bloomberg News)