U.S. Stocks Gain on Economic Optimism as Financials Rally
March 10, 2010, 4:47 PM ESTBy Rita Nazareth and Craig Trudell
March 10 (Bloomberg) -- U.S. stocks rose for a second day as a drop in wholesale inventories and improvement in corporate bond markets added to signs the economy is strengthening, overshadowing concern China will raise interest rates.
Citigroup Inc. advanced 3.7 percent as the bank sold trust preferred securities to raise capital. American International Group Inc. surged 11 percent amid speculation asset sales will improve the insurer’s viability. Financial shares in the Standard & Poor’s 500 Index climbed for a ninth straight day, the longest streak in 12 years. Equities trimmed gains in afternoon trading amid growing concern China may need to increase borrowing costs to combat inflation.
The S&P 500 rose 0.5 percent to 1,145.61 at 4:04 p.m. in New York and earlier jumped 0.7 percent to within 2 points of its 2010 high. The Dow Jones Industrial Average increased 2.95 points, or less than 0.1 percent, to 10,567.33.
“The bias for stocks is higher,” said Eric Teal, who oversees $5 billion as chief investment officer at First Citizens BancShares Inc. in Raleigh, North Carolina. “The economic readings have surprised and will continue to surprise given the strength of the profit cycle. Looking abroad, there are lots of different signals from China. However, the overwhelming view is that China will go slow on monetary tightening.”
U.S. stocks rose yesterday on the anniversary of the 2009 bear-market low for the S&P 500 amid speculation the economy will continue to recover from the worst contraction since the Great Depression. The S&P 500 has rallied 69 percent from a 12- year low last March as the Federal Reserve kept its benchmark interest rate near zero to stimulate economic growth.
Losses Recovered
The S&P 500, the main benchmark for U.S. stocks, has recovered most of its losses after sliding as much as 8.1 percent from this year’s high on Jan. 19 amid concern that some European countries will fail to pay back debt and speculation the Federal Reserve will need to rein in emergency stimulus measures as the economy improves.
Stocks extended gains in early trading today after inventories at U.S. wholesalers unexpectedly dropped 0.2 percent in January, signaling companies had difficulty keeping pace with demand, government data showed today.
AIG rallied for a fifth straight day, its longest streak since August. The shares gained 11 percent to $36.24 and have jumped about 46 percent since March 3 on speculation the company will be able to repay a government bailout and meet other debt obligations. The insurer reaped at least $3.2 billion for bondholders after announcing deals to sell its two largest non- U.S. life insurance divisions for $51 billion.
Citigroup Jumps
Citigroup climbed 3.7 percent to $3.96, adding to yesterday’s 7.3 percent advance. Citigroup, seeking to bolster capital after repaying bailout funds to the Treasury, sold $2 billion of 30-year trust preferred securities with an 8.5 percent yield, according to a person who declined to be identified because the bank hasn’t disclosed terms.
Financial shares in the S&P 500 rallied 1.1 percent for the top gain among 10 industries. The group climbed to its highest level since Oct. 15.
Yields on corporate bonds are near five-year lows, according to Bank of America Merrill Lynch’s Global Broad Market Corporate Index. The cost to protect against defaults on U.S. corporate bonds declined to the lowest in almost eight weeks as a surge in company bond sales signaled increased investor confidence. Borrowers sold $13.9 billion of U.S. corporate bonds yesterday, the busiest day in more than a month.
Regional Banks Rally
Regional banks in the S&P 500 rose 2.9 percent as a group to the highest since December 2008.
Regions Financial Corp. climbed 5.5 percent to $7.29 after saying profit margins would widen. Zions Bancorporation gained 6.4 percent to $20.49 after telling investors at a conference that it would make more money lending this quarter.
Huntington Bancshares Inc. advanced 4.4 percent to $5.25 after reiterating that it expects quarterly profits “at some time in 2010” and saying its long-term plan is to boost its 1- cent dividend. The comments were included in a regulatory filing.
American Eagle Outfitters Inc. gained 6.1 percent to $18.20. The U.S. clothing retailer said it plans to close its Martin+Osa concept, including all 28 stores and the online business. It also estimated first-quarter earnings per share excluding some items of 15 cents to 17 cents. Analysts in a Bloomberg survey had estimated it at 15 cents.
InterMune, Facet
InterMune Inc. soared 65 percent to $38.39. The maker of a treatment for a deadly lung disease that afflicts about 100,000 Americans won a U.S. panel’s backing to introduce the medicine. The Food and Drug Administration usually follows the recommendations of its advisory panels.
Facet Biotech Corp. jumped 67 percent to $27.01. Abbott Laboratories, maker of the arthritis drug Humira, agreed to buy the company for $27 a share, adding experimental medicines in cancer and immunology. Both boards have approved the accord, which is expected to close in the second quarter, the companies said in a statement.
Newmont Mining Corp. lost 1.6 percent and led materials producers lower as gold, copper and aluminum dropped at least 1.2 percent in London. China’s exports jumped more than forecast in February and property prices rose at the fastest pace in 23 months, adding to pressure on policy makers to pare back stimulus measures adopted during the global recession.
‘Voracious Appetite’
Tonight’s report on Chinese inflation is important in “light of the possibility of an interest rate hike at some point,” Peter Boockvar, equity strategist at Miller Tabak & Co., said in a note to clients. “Due to China’s voracious appetite for commodities as we all know, the relationship of late is not likely a coincidence.”
The S&P 500 retreated 0.3 percent on Feb. 12, the most recent time that Chinese regulators announced plans to rein-in lending by raising banks’ reserve requirements. Consumer prices in China may have increased 2.5 percent in February from a year earlier and producer prices probably rose 5.1 percent, the biggest gains in 16 months, according to the median estimates in Bloomberg surveys of economists.
“There’s buzz going around” that tonight’s Chinese inflation data will be “hotter than expected,” said Art Hogan, the chief market analyst at New York-based Jefferies & Co. The world’s fastest growing economy has moved to cool growth at least twice already this year.
Navistar Slips
Navistar International Corp. fell 5.3 percent to $41.91. Its first-quarter sales of $2.8 billion were 13 percent lower than the average of 10 analyst estimates in a Bloomberg survey.
Greek Prime Minister George Papandreou said after a meeting at the White House yesterday that U.S. President Barack Obama expressed support for measures being taken to deal with the financial crisis. The worst of Greece’s financial crisis is over and other European nations won’t follow in its path, former European Commission President Romano Prodi said.
The Bloomberg Professional Global Confidence Index fell to 53.8 from 54.9 in February. Sentiment declined in Europe, suggesting policy makers may need to rein in fiscal stimulus efforts before evidence emerges of sustained recoveries in some economies. The index exceeded 50 for an eighth month, which means there were more optimists than pessimists.
“The big question is -- where do we go from here?” said Peter Jankovskis, who helps manage about $1.8 billion as co- chief investment officer at Oakbrook Investments in Lisle, Illinois. “We’ve had a very strong rally off the lows. There are certainly expectations that things are getting better. The financial system has stabilized. Yet we haven’t seen enough to say that is sustainable. People are waiting for more evidence to go one way or the other.”
--With assistance from Scott Schnipper and Elizabeth Stanton in New York and Julie Cruz in Frankfurt. Editors: Michael P. Regan, Joanna Ossinger
To contact the reporters on this story: Rita Nazareth in New York at rnazareth7@bloomberg.net; Craig Trudell in New York at ctrudell1@bloomberg.net.
To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net
