U.S. Stocks Gain Amid Optimism Economy Can Weather Budget Cuts
April 13, 2011, 5:34 PM EDTBy Rita Nazareth
April 13 (Bloomberg) -- U.S. stocks rose, halting the longest Standard & Poor’s 500 Index slump since November, as a Federal Reserve report fueled optimism the economy can weather President Barack Obama’s plan to cut spending and raise taxes.
Caterpillar Inc. and Kraft Foods Inc. led gains in the Dow Jones Industrial Average as the Fed said most of its districts reported improvements in the economy were widespread across sectors. Riverbed Technology Inc. soared 12 percent as the computer networking company’s profit beat analyst estimates. Lockheed Martin Corp. and Raytheon Co. dropped at least 2.5 percent as Obama proposed cutting $400 billion from the Pentagon’s budget through 2023.
The S&P 500 snapped a four-day slump, rising less than 0.1 percent to 1,314.41 at 4 p.m. in New York. The Dow average increased 7.41 points, or 0.1 percent, to 12,270.99 today. Benchmark indexes fell earlier as details of Obama’s plan emerged, then turned higher after the Fed’s Beige Book said the economy and labor markets improved.
“The economy is in good shape,” said Kevin Caron, a market strategist in Florham Park, New Jersey, at Stifel Nicolaus & Co., which had about $110 billion in client assets. “The evidence of the last few years has been that whenever the government leads in spending money, the private sector follows.”
Government Stimulus
The S&P 500 has risen 4.5 percent in 2011, extending last year’s 13 percent gain, amid government stimulus measures and higher-than-estimated corporate profits. The index has surged 26 percent since Fed Chairman Ben S. Bernanke’s suggested on Aug. 27 that he would pursue a second round of asset purchases to stimulate the economy, a tactic known as quantitative easing.
Obama, presenting his second plan in as many months to reduce the nation’s long-term debt today, vowed to cut $4 trillion in cumulative deficits within 12 years through a combination of spending cuts and tax increases.
Equities began reversing losses after the Fed said the economy expanded at a “moderate” pace across much of the U.S. in February and March, led by manufacturing, with labor markets showing improvements in most regions.
“While many districts described the improvements as only moderate, most districts stated that gains were widespread across sectors,” the Fed said today in its Beige Book report. While higher commodity costs compelled sellers to try to raise prices, pressures to increase wages were “weak or subdued.”
Retail Sales
Earlier gains in stocks today came as sales at U.S. retailers in March indicated the improving job market is helping Americans cope with higher costs for fuel and food. Purchases increased 0.4 percent following a 1.1 percent February gain that was larger than previously estimated, Commerce Department figures showed. The median forecast of 82 economists surveyed by Bloomberg News was a 0.5 percent rise. Sales excluding automobiles and gasoline advanced more than projected.
“The tide is still a tide towards normalcy as far as the economy goes,” said David Kelly, who helps oversee $405 billion as chief market strategist at JPMorgan Funds in New York. “Consumers have a lot more energy than people thought. We’re going to see more positive than negative surprises. Same goes for a steady improvement in corporate profits.” A gauge of consumer and apparel companies in the S&P 500 rose 1.3 percent, the biggest gain within 24 industries.
Apparel Companies Rally
Coach Inc., the largest U.S. maker of luxury leather handbags, added 3.6 percent to $53.97. Nike Inc., the world’s largest sporting goods company, rose 1.6 percent to $79.41.
Riverbed Technology soared 12 percent to $34.74. The computer networking technology company said that, excluding some items, it earned at least 19 cents a share in the first quarter. That topped the average analyst estimate of 18 cents in a Bloomberg survey.
GameStop Corp. rose 6.6 percent to $25.36, the biggest advance in the S&P 500. The world’s largest video-game retailer is facing a digital transition similar to one undertaken by Netflix Inc., according to Tony Wible, an analyst at Janney Montgomery Scott LLC. Wible cited 10 reasons to buy the company, including increased number of users, digital investments and new game systems.
MGM Resorts International rallied 8.6 percent to $13.70, the most in the Russell 1000 Index. The casino company founded by billionaire Kirk Kerkorian will gain control over its Macau joint venture through steps including an initial public offering of some shares held by partner Pansy Ho.
Military Contractors
Military contractors declined as President Obama proposed to cut $400 billion from current and future defense spending. Lockheed Martin dropped 2.6 percent to $78.31. Raytheon slipped 2.9 percent to $48.68. General Dynamics Corp. fell 1.5 percent to $71.81.
For-profit education stocks dropped as Democrats in Congress agreed to cut Pell grants for students in summer school. “Although the maximum Pell Grant amount is unchanged at $5,550, Congress is about to end year-round Pell Grants,” wrote Arvind Bhatia, an analyst at Sterne Agee & Leach Inc., in an e- mail. Strayer Education Inc. slumped 7.1 percent to $124.38, the biggest decline in the Russell 1000 Index. Apollo Group Inc. retreated 3 percent to $39.88.
Banks had the biggest decline in the S&P 500 within 24 industries, slumping 1.7 percent as a group, as regulators said the 14 largest U.S. mortgage servicers must pay back homeowners of botched foreclosures.
Pay Back
The 14 largest U.S. mortgage servicers must pay back homeowners for losses from foreclosures or loans that were mishandled in the wake of the housing collapse, according to a consent decree released today. The agreement between the servicers and U.S. regulators imposes more substantial penalties than early reports of the deal indicated. It could also help the U.S. Justice Department determine the size and scope of any future fines for the flawed practices, regulators said.
The banks, including JPMorgan Chase & Co. and Wells Fargo & Co., agreed in the settlement to conduct a review of all loans that went into foreclosure in 2009 and 2010. They also agreed to improve their foreclosure, loan modification and refinancing procedures.
JPMorgan Chase & Co. fell 0.8 percent to $46.25, reversing an earlier rally triggered by higher-than-forecast earnings, as Chief Executive Officer Jamie Dimon signaled the lender will not boost dividends in the next couple of quarters.
--With assistance from Julie Hirschfeld Davis in Washington. Editor: Michael Regan
To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net
To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net
