Bloomberg News

U.S. Stocks Advance on Better-Than-Estimated Economic Reports

June 16, 2011

June 16 (Bloomberg) -- U.S. stocks rebounded, a day after the Standard & Poor’s 500 Index declined to a three-month low, as better-than-estimated housing starts and jobless claims reports tempered concern about a slowdown in the economy.

A gauge of 12 homebuilders in S&P indexes rallied 1.6 percent. Kroger Co. advanced 4.5 percent after the largest U.S. grocery chain raised its full-year profit forecast. Southern Union Co. soared 18 percent as Energy Transfer Equity LP agreed to buy it for $4.2 billion in the largest purchase of a pipeline company this year. Benchmark indexes erased gains earlier today amid concern big banks will face larger capital increases to comply with proposed international regulations.

The S&P 500 rose 0.2 percent to 1,267.64 at 4 p.m. in New York. The benchmark gauge for American equities is still up 0.8 percent this year. The Dow Jones Industrial Average advanced 64.25 points, or 0.5 percent, to 11,961.52 today.

“We’re bullish,” said Linda Duessel, the Pittsburgh-based equity market strategist at Federated Investors, which oversees $354.9 billion. “The market doesn’t believe that we’re going into a recession. It’s a soft patch. We should bounce back up.”

The S&P 500 has fallen 7 percent from this year’s high at the end of April amid concern about an economic slowdown. Equities slumped as reports showed business activity cooled more than forecast, sales of existing homes unexpectedly declined and growth in industrial production stopped. The S&P 500 yesterday traded at 12.7 times forecast 2011 earnings, the lowest multiple in almost a year, according to data compiled by Bloomberg.

‘Really Oversold’

“We’re really oversold,” Steven Leuthold, founder of Leuthold Group LLC, said in an interview with Betty Liu on “In the Loop” on Bloomberg Television. “We’ve gone too far, too fast. There’s going to be some kind of a shift in confidence here. We’re probably close to an area where we’re going to get some significant bounce.”

Stocks rose after a report showed that jobless claims declined by 16,000 to 414,000 in the week ended June 11. Economists surveyed by Bloomberg News projected 420,000 filings, according to the median forecast.

Work began on 560,000 houses at an annual pace, up 3.5 percent from the prior month and exceeding the 545,000 median forecast of economists surveyed by Bloomberg News, figures from the Commerce Department showed today in Washington. Building permits, a sign of future construction, also increased.

Factory Production

Stocks briefly erased gains after a report showed that manufacturing in the Philadelphia region unexpectedly shrank in June for the first time in nine months, raising the risk that factory production may contribute less to the expansion.

Homebuilders advanced. D.R. Horton Inc. rose 1.6 percent to $10.96. Lennar Corp. climbed 2.1 percent to $17.24. Home improvement retailers also gained. Home Depot Inc. increased 1.8 percent to $34.50.

Kroger rose 4.5 percent to $23.99. Earnings will be as much as $1.95 a share, Cincinnati-based Kroger said today. That compares with a previous forecast of up to $1.92. Analysts on average anticipate $1.90, according to a Bloomberg survey.

Southern Union soared 18 percent to $33.21. Shareholders of Houston-based Southern Union will get new units worth $33 each, representing a 17 percent premium to yesterday’s closing price. Energy Transfer also will assume $3.7 billion of debt.

Stocks also erased gains earlier today after people familiar with the matter said international financial supervisors are considering capital surcharges of as much as 3.5 percentage points on the largest banks if they grow bigger.

Basel Committee

Draft plans circulated before a meeting next week of the Basel Committee on Banking Supervision would subject banks to a sliding scale depending on their size and links to other lenders, said the people, who declined to be identified because the proposals aren’t public. Banks wouldn’t initially face the highest surcharge, which is intended as a deterrent to expansion, one person said. The largest banks may face a 3 percentage point levy at their current sizes, the person said.

Citigroup Inc. retreated 1 percent to $37.63. JPMorgan Chase & Co. declined 0.8 percent to $40.36.

“We need the banks for the economy to recover,” said Mark Bronzo, who helps manage $26 billion at Security Global Investors in Irvington, New York. “If the capital requirements are too restrictive, some banks may have to raise more capital. If restrictions are more severe than expected, that may also prevent banks from lending as much as people want them to do.”

Finisar Corp. slumped 16 percent to $14.84. The maker of fiber-optic transmission gear reported fourth-quarter revenue of $236.9 million, missing the average analyst estimate of $243 million. Rivals JDS Uniphase Corp. declined 5.8 percent to $15.57, while Ciena Corp. dropped 4.7 percent to $17.26.

Pandora Tumbles

Pandora Media Inc. tumbled 24 percent to $13.26, erasing yesterday’s gain, amid concern that competition may stymie efforts by the online-radio company to reach profitability.

Individual investors and newsletter writers are the most bearish on U.S. stocks since at least August, a sign the six- week slump may be nearing an end, according to analysts who use charts to predict markets.

The 7.2 percent drop in the S&P 500 since its April high through yesterday has turned more investors pessimistic as economic reports stoked concern the economy is slowing. A survey from the American Association of Individual Investors showed bears outnumbering bulls by the biggest margin since August. The ratio of bullish-to-bearish publications in Investors Intelligence’s survey was the lowest since September.

“We have some fear in the market,” Katie Stockton, MKM Partners’ chief market technician, said in an interview from Greenwich, Connecticut. “It’s a good thing from a contrarian perspective in that a market low typically is established when there is fear in the market.”

--With assistance from Jim Brunsden in Brussels. Editors: Joanna Ossinger, 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


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