Bloomberg News

U.S. Stocks Rise to Prevent Longest S&P 500 Slump Since 2001

June 18, 2011

June 18 (Bloomberg) -- U.S. stocks rose for the first time in seven weeks, preventing the longest losing streaks for the Standard & Poor’s 500 Index and Dow Jones Industrial Average since 2001, as concern about the American economy ebbed even as the Greek debt crisis deepened.

Home Depot Inc., McDonald’s Corp. and Microsoft Corp. advanced more than 2.4 percent this week to lead gains in the Dow after reports on jobless claims, retail sales and housing beat economist estimates. VF Corp. jumped 12 percent after agreeing to buy Timberland Co., while J.C. Penney Co. surged 15 percent after hiring an Apple Inc. vice president as its chief executive officer. Owens-Illinois Inc. fell 13 percent, the most in the S&P 500, after cutting its profit-margin forecast.

The Standard & Poor’s 500 Index rose less than 0.1 percent to 1,271.50. It lost 6.8 percent during the six-week slump. The Dow rose 52.45 points, or 0.4 percent, to 12,004.36 this week.

“You have dry timber from the selloff, then you get a match from the economic news and Greece, and you’ve got a little bit of fire going in the market,” said Paul Zemsky, the New York-based head of asset allocation for ING Investment Management, which oversees $550 billion. “It’s a recipe for people reevaluating, and saying, ‘If Greece makes it, stocks are kind of attractive here.’”

The S&P 500 has declined 6.8 percent since April 29, its high for the year. This week, it came within 1 point of erasing its 2011 gain amid speculation Greece won’t repay its debt, causing a shock to the global financial system. The cost of insuring the European nation’s debt jumped, sending credit- default swaps to a record 2,237 points on June 16. The concern eased yesterday after German Chancellor Angela Merkel relented on her stance that bondholders should shoulder the burden of the Greek debt crisis.

Cheaper Stocks

While the S&P 500 has curbed its rally since the bull market began on March 9, 2009, to 88 percent from as much as 102 percent, it’s also led to cheaper stock valuations. The slump pushed the index to trade at less than 13 times estimated earnings, making it the cheapest it’s been since August, Bloomberg data show. Earnings are forecast to climb 17 percent to $99.26 in 2011.

Before this week, the economic outlook had worsened, including an increase in the unemployment rate to 9.1 percent. Weakening data had pushed the Citigroup Economic Surprise Index for the U.S. as low as minus 117.2, showing that reports were missing projections by the most since January 2009.

Jobs, Housing Starts

Investors grew more optimistic as jobless claims fell to 414,000 last week, less than the median economist estimate, according to the Labor Department. The Commerce Department said housing starts in the U.S. increased more than forecast in May, while retail sales declined less than estimated.

“When you look at the broad picture of data on the economy, there’s been some weakening, but most of the data still seems to be moving in a positive direction,” said Kevin Caron, a market strategist in Florham Park, New Jersey, at Stifel Nicolaus & Co, which has $115 billion in client assets. “When you look at the equity markets, there is something of an advantage to be had.”

The S&P 500 had been on track for one of the longest slumps in its history before this week. Since the New York Stock Exchange shifted to a five-day week from six in 1952, the gauge has posted one seven-week slump, in 1980, and two eight-week declines, in 1970 and 2001, according to data compiled by Bloomberg. There have been five seven-week drops for the Dow.

Home Depot, McDonald’s

Home Depot advanced 3.2 percent to $34.53 this week. McDonald’s gained 2.7 percent to $82.52, and Microsoft increased 2.3 percent to $24.26. United Technologies Corp., which makes Pratt & Whitney jet engines, gained after saying Boeing Co. will likely opt to replace its 737 jetliner. The shares rose 2.3 percent to $84.57.

VF, the world’s largest apparel maker, said it’s buying hiking-boot company Timberland for about $1.8 billion, or $43 a share. The acquisition is the biggest in VF’s 112-year history. Its shares advanced 12 percent, the most since March 2009, to $102.80.

Shares of companies that have made acquisitions have beaten their benchmark indexes following a takeover announcement a majority of the time in eight of the past 12 years, according to a Bloomberg analysis of more than 3,800 transactions worldwide. The most recent three years have set records for gains. The median reaction before 2009 was a 0.2 percentage point advance over the benchmark, the data show.

Apple Executive Quits

J.C. Penney soared 15 percent to $34.29 and rose the most in a day since 2000 on June 14. The third-largest U.S. department-store chain said Ron Johnson, who spearheaded the creation of Apple’s retail chain, will become CEO this year.

Owens-Illinois, the world’s biggest maker of glass bottles, cut its second-quarter profit margin forecast because of higher costs and weaker demand in Australia. The shares dropped 13 percent to $25.58.

Research In Motion Ltd. plummeted 24 percent, the most since September 2008, to $27.75. The maker of the BlackBerry smartphone forecast second-quarter revenue and profit that missed analysts’ estimates and said it will cut jobs as a lack of new models prompts consumers to buy rival devices.

Moody’s Corp. slumped 12 percent, the most since September 2009, to $36.35. McGraw-Hill Cos. slipped 3 percent to $39.61. The U.S. Securities and Exchange is considering fraud charges over ratings of mortgage-backed assets, the Wall Street Journal reported, citing people familiar with the matter that it didn’t identify.

Materials shares lost the most among 10 S&P 500 industries this week. falling 2 percent. Defensive industries accounted for three of the top four advances. Consumer staples climbed 1.2 percent as a group, while utilities increased 1 percent and telecommunications companies rallied 0.9 percent.

--Editors: Nick Baker, Joanna Ossinger

To contact the reporters on this story: Whitney Kisling in New York at wkisling@bloomberg.net; Victoria Stilwell in New York at vstilwell@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net


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