U.S. Stocks Gain on EU Plan, Accelerated Growth
Oct. 28 (Bloomberg) -- Timothy Hayes, chief investment strategist at Ned Davis Research, talks about the performance of U.S. equities, investment strategy and the outlook for stocks. He speaks with Adam Johnson on Bloomberg Television's "Street Smart." (Source: Bloomberg)
U.S. stocks rose this week, driving the Standard & Poor’s 500 Index toward the biggest monthly gain since 1974, after European leaders agreed to expand the region’s bailout fund and American economic growth accelerated.
Bank of America Corp. (BAC), Alcoa Inc. (AA) and Caterpillar Inc. (CAT) jumped at least 10 percent to lead Dow Jones Industrial Average (INDU) gains. Raw-material and financial shares led an advance by all 10 industries in the S&P 500, adding more than 6.9 percent. Advanced Micro Devices Inc. (AMD) rose 26 percent after profit beat estimates. Hewlett-Packard Co. (HPQ) advanced 10 percent after abandoning plans to spin off its personal-computer business.
The S&P 500 rose 3.8 percent to 1,285.09, the highest since Aug. 1. It has rallied four straight weeks, the longest streak since January, and added 14 percent in October. The Dow gained 422.32 points, or 3.6 percent, to 12,231.11 this week.
“The crisis atmosphere has lessened,” Nick Sargen, chief investment officer at Fort Washington Investment Advisors in Cincinnati, which oversees more than $38 billion, said in a telephone interview. “European policy makers have bought more time,” he said. “It’s not a permanent solution, but it limits the immediate risk to the market.”
Stocks gained after the European rescue fund was boosted to 1 trillion euros ($1.4 trillion) and investors agreed to a voluntary writedown of 50 percent on Greek debt. The S&P 500 had fallen five consecutive months, driven lower by concern the debt crisis would curb global growth, before starting to rebound on Oct. 3. The stock index recovered as better-than-estimated U.S. reports pushed the Citigroup Economic Surprise Index above zero for the first time since April.
Expanding Economy
Equities also climbed after the U.S. economy expanded in the third quarter at the fastest pace in a year, as gains in consumer spending and business investment helped support a recovery on the brink of faltering. Separate data showed that consumer confidence unexpectedly rose in October, while fewer Americans filed for unemployment assistance last week.
Companies most-tied to the economy gained as the Morgan Stanley Cyclical Index advanced 7 percent to its highest level since Aug. 3. Goodyear Tire & Rubber Co. (GT), largest U.S. tiremaker, added 14 percent to $14.84. Ingersoll-Rand Plc (IR), the maker of Trane air conditioners, increased 16 percent to $32.34 in the biggest weekly rally since July 2009.
Caterpillar increased 11 percent to $96.85, its highest level since Aug. 2. The world’s largest construction and mining- equipment maker posted higher-than-expected third-quarter profit and sales and said 2012 revenue will gain as the U.S. and global economies improve.
Corporate Earnings
This week, 189 companies in the S&P 500 reported quarterly results. About three quarters of the companies that reported earnings since Oct. 11 beat analysts’ projections, according to Bloomberg data. Earnings have surpassed estimates by an average 5.8 percent.
Advanced Micro Devices advanced 26 percent, the biggest gain in almost two years, to $5.94. The second-largest maker of processors for personal computers reported third-quarter earnings excluding some items that beat analyst estimates by 52 percent. The company also forecast fourth-quarter sales that may top some analysts’ estimates on strong demand for laptops in emerging markets.
Akamai Technologies Inc. (AKAM) jumped 19 percent to $28.29. The operator of a server network that lets businesses speed data delivery forecast fourth-quarter sales of $303 million to $315 million, compared with the average analyst estimate of $310.9 million in a Bloomberg survey.
Dreamliner Delivery
Boeing Co. (BA) gained 5.5 percent to $68.17. Its profit topped estimates for the quarter when it delivered the first 787 Dreamliner and said the new model’s production costs will be spread over 1,100 planes, matching analysts’ projections.
Third-quarter corporate earnings “show things aren’t as bad as the market thought,” Terry Morris, who manages $2.2 billion at National Penn Investors Trust Co. in Wyomissing, Pennsylvania, said in a phone interview. “Maybe things will be kind of quiet in Europe now and we can get back to fundamentals.”
Financial shares in the S&P 500 rose 7 percent, the biggest advance since July 2010, as 76 of 81 companies rose. Morgan Stanley (MS) soared 13 percent to $19.31. JPMorgan Chase & Co. (JPM) jumped 9.8 percent, the most since July 2009, to $36.69. Bank of America, which has dropped 45 percent this year for the worst performance in the Dow, surged 14 percent to $7.35.
Biggest Rally
Raw-material producers gained 7.9 percent, the most among 10 industry groups in the S&P 500, after a report from HSBC Holdings Plc and Markit Economics showed China’s manufacturing may end the longest contraction since 2009. The report, along with Japanese data showing exports exceeded economists’ forecasts, signaled that Asia’s two largest economies are withstanding Europe’s sovereign debt crisis.
Cliffs Natural Resources Inc. (CLF), North America’s largest iron-ore producer, advanced 21 percent to $72.81. Freeport- McMoRan Copper & Gold Inc. gained 17 percent to $42.80 as copper futures posted the biggest weekly gain since at least 1988. Alcoa, the largest U.S. aluminum producer, jumped 13 percent to $11.57.
Hewlett-Packard gained 10 percent to $27.94, the highest price since Aug. 18. Chief Executive Officer Meg Whitman abandoned plans to spin off its market-leading personal-computer unit, taking a step toward unwinding the moves that led to her predecessor’s ouster.
Netflix Drops
Netflix Inc. (NFLX) plunged 28 percent, the biggest decline since 2004, to $84.14. The online-video service said it lost 800,000 U.S. subscribers in the third quarter, more than expected, and predicted more cancellations because of a price increase.
Tobias Levkovich, a New York-based U.S. equity strategist at Citigroup Inc., said the S&P 500 will extend gains through the end of the year. He estimates the index will end 2011 at 1,325, a 3.1 percent gain from yesterday’s close.
“We’re not off to the races into a new bull market, but we are going to trade to the upside,” Levkovich said in an interview on Bloomberg Radio’s “Bloomberg Surveillance” with Ken Prewitt and Tom Keene. “Valuations look pretty attractive, earnings expectations are starting to get more realistic and credit conditions have been fairly reasonable.”
To contact the reporters on this story: Kaitlyn Kiernan in New York at kkiernan2@bloomberg.net; Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net.
To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net.
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