The stock markets in the United States are upbeat and have recorded high gains as investors are looking forward to the scheduled meeting of the Federal Reserve tomorrow. Many want to know about the next move of the policy makers, particularly the planned tapering of the $85 billion quantitative easing (QE).
Based on data compiled by Bloomberg, economists are projecting that the Federal Reserve will reduce its bond purchases program by $10 billion to $75 billion. The quantitative easing helped the S&P 500 climb by more than 150 percent since its decline in March 2009. The Federal Reserve first indicated last May that it would taper its bond buying activities this year. Economists believe that policy makers could implement tapering by the end of this month.
Jerry Braakman, chief investment officer at First American Trust said, “Everybody’s looking forward to tomorrow to see what the Fed’s statement is going to be. With inflation being benign, it doesn’t require a more aggressive tightening than the market would expect.” He added that companies implementing huge buybacks are “returning capital to the market, which helps propel it to new highs.”
Meanwhile, the Department of Labor reported that the cost of living in the United States increased, but lower than the expectations for the month of August. The report showed that reaching the Federal Reserve’s goal on inflation requires more time. Policy makers are closely monitoring prices to ensure that the economy of the United States will not go towards a long period of disinflation, which could harm economic growth.
- Dow Jones Industrial Average (DJIA)- 15,527 (+0.21%)
- S&P 500- 1,704 (+0.40%)
- NASDAQ- 3,744 (+0.72%)
- Russell 2000- 1,065 (+0.87%)
- EURO STOXX 50 Price EUR- 2, 890 (-0.13%)
- FTSE 100 Index- 6,570 (-0.80%)
- Deutsche Borse AG German Stock Index DAX- 8,596 (-0.19%)
Asia Pacific Markets
- Nikkei 225- 14, 311 (-0.65%)
- Hong Kong Hang Seng Index- 23, 180 (-0.31%)
- Shanghai Shenzhen CSI 300 Index- 2, 427(-2.06%)
Stocks In Focus
The stock price of Aeropostale Inc (NYSE:ARO) rose by more than 17 percent after a privately equity firm, Hummingbird, which is indirectly owned by Sycamore Fund disclosed its acquisition of 6.25 million shares or 7.9 percent stake in the company. The stock reached as high as $10.47 per share on Tuesday.
Multi-level marketing company, Herbalife Ltd. (NYSE:HLF) gained by nearly 4 percent to as much as $73.91 per share, driven by investor’s anticipation that the company will implement a huge leveraged share buyback. DA Davidson analyst Tim Ramey believed that Herbalife would significantly repurchase its shares once its auditors certify its financial documents. In a previous note to investors, Ramey wrote, “It’s a fact that if Herbalife acquired $2 billion of stock at ‘current stock prices’ (let’s assume $70) and financed that with ten-year notes at 5 percent, it will be accretive by $1.25 per share. For it not to be accretive, the interest rate would have to be 11.25 percent, but of course, the likelihood that the interest rate would be lower than 5 percent is much higher than the likelihood that it would be higher. Free cash flow in 2014 should be over $500 million. And yes, a meaningful buyback will always shrink the outstanding share float.”
The stock value of Kythera Biopharmaceuticals Inc (NASDAQ:KYTH) surged by almost 25 percent and reached as high as $43.25 per share after reporting that the late stage clinical studies of its drug to treat double chins met its goal.
According to the company, ATX-101 injection provides better results in reducing fat in the sub-mental area of the neck, which creates an appearance of double chin compared with placebos. The injection destroys fat cells, but does not affect other tissues.
Meanwhile, Microsoft Corporation (NASDAQ:MSFT) slightly climbed to around $32.97 a share after the company renewed its $40 billion shares repurchase program, and increased its quarterly dividend by more than 20 percent. Walter Pritchard, analyst at Citigroup, reiterated his buy rating with a $35 price target for the stock.