U.S. Stocks Rally as G-8 Says Global Economy Is Strengthening
May 27, 2011, 5:42 PM EDTBy Rita Nazareth
May 27 (Bloomberg) -- U.S. stocks rose, trimming the longest weekly drop in more than 15 months, as comments from the Group of Eight about the global economy’s strength offset a slump in home sales that was 12 times faster than projected.
Freeport-McMoRan Copper & Gold Inc. advanced 2.7 percent as copper rallied after Standard Chartered Plc predicted price gains. Wells Fargo & Co. and Bank of America Corp. increased at least 1.5 percent, pacing a rally in financial shares, as European Central Bank governing council member Nout Wellink said he expects Greece to get International Monetary Fund aid next month. Marvell Technology Group Ltd. surged 11 percent after projecting higher sales than analysts estimated.
The Standard & Poor’s 500 Index advanced 0.4 percent to 1,331.10 at 4 p.m. in New York. The Dow Jones Industrial Average added 38.82 points, or 0.3 percent, to 12,441.58. Both gauges fell for a fourth straight week. Volume on U.S. exchanges was 19 percent lower than a week earlier at 5.47 billion shares before the Memorial Day holiday.
“The resilience of riskier assets is linked to the fact that we’re still going to have easy monetary policy,” said Bruce Bittles, chief investment strategist at Milwaukee-based Robert W. Baird & Co., which oversees $85 billion. “The Federal Reserve’s program of quantitative easing has helped bolster stock prices, but has not helped the housing market.”
The S&P 500 fell 2.4 percent from an almost three-year high on April 29 on concern about Europe’s debt crisis and weaker- than-forecast economic data. Still, the gauge rose 5.8 percent from the end of 2010 amid government stimulus measures and higher-than-forecast corporate profits.
Global Economy
Global stocks rose after the Group of Eight leaders said that a strengthening global economy will pave the way to cuts in the debt built up during the recession that followed the 2008 financial crisis. Europe vowed to fight its fiscal woes with “determination,” while President Barack Obama promised a “clear and credible” U.S. deficit-reduction strategy. Japan was allowed to put off savings measures until its economy rebounds from the March earthquake and tsunami.
“The global recovery is gaining strength and is becoming more self-sustained,” according to a statement after a two-day summit in Deauville, France. Without mapping out binding targets, the leaders pledged to “remain focused on the action required to enhance the sustainability of public finances.” U.S. consumers grew more confident in May than a month earlier as declining gasoline prices helped lift Americans’ spirits.
Consumer Sentiment
The Thomson Reuters/University of Michigan final index of consumer sentiment increased to a three-month high of 74.3 from 69.8 in April. Economists forecast a reading of 72.4, the same as the preliminary figure issued earlier this month, according to the median estimate in a Bloomberg News survey.
“The world is healing economically,” said Philip Orlando, the New York-based chief equity market strategist at Federated Investors Inc., which oversees $358.2 billion. “I’m delighted to see the G-8 take a longer-term view of things, especially because some investors have been focused on the near term.”
U.S. stocks rose and a gauge of homebuilders in the S&P indexes rallied 1.9 percent even after a report showed that the number of Americans signing contracts to buy previously owned homes plunged more than forecast in April, a sign the industry that triggered the recession continues to struggle.
A gauge of raw-material producers had the biggest gain in the S&P 500 within 10 industries, rising 1 percent. Copper rose in New York as increased premiums signaled stronger demand in China and Standard Chartered Plc predicted price gains, joining banks including Goldman Sachs Group Inc. Freeport, the largest publicly traded copper producer, advanced 2.7 percent to $51.73.
Banks Rally
Banks had the biggest gain in the S&P 500 within 24 industries, rallying 1.5 percent as a group. The KBW Bank Index added 1.4 percent as 21 of its 24 stocks gained.
Wells Fargo, the largest U.S. home lender, advanced 1.6 percent to $28.14. Bank of America rose the most in the Dow, rallying 2 percent to $11.69.
Marvell Technology surged 11 percent to $16.17. The maker of the processor that runs BlackBerry smartphones forecast second-quarter profit of 35 cents to 39 cents a share, excluding some items. Analysts projected 33 cents, according to the average of estimates compiled by Bloomberg.
Broadcom Corp. climbed 5.4 percent to $36.52. The maker of semiconductors for wireless headsets and television set-top boxes was added to FBR Capital Markets’ Top Picks list. The stock presented “an attractive and rare value opportunity” for investors, given the company’s growth potential, analyst Craig Berger wrote in a note.
Aflac Slumps
Aflac Inc. fell 3.2 percent to $48. The world’s largest seller of supplemental health insurance was cut to “equal weight” from “overweight” at Morgan Stanley, which said the company may see a limit to its capital management opportunities.
Nouriel Roubini, the economist who predicted the global financial crisis, said stock markets are at the “tipping point” of a correction as economic growth may begin to slow.
Companies had ridden a worldwide recovery to boost sales and profits, supporting equity price increases, Roubini told a conference in Budapest today. Now, signs of a global economic slowdown may drag down stock prices, he said.
“Until two weeks ago I’d say markets were shrugging off all these concerns, saying they don’t matter because they were believing the global economic recovery was on track,” Roubini said. “But I think right now we’re on the tipping point of a market correction. Data from the U.S., from Europe, from Japan, from China are suggesting an economic slowdown.”
--Editor: Jeff Sutherland
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
