Bloomberg News

U.S. Stocks Rally as Germany, France Express Support for Greece

September 14, 2011

Sept. 14 (Bloomberg) -- U.S. stocks rose, sending the Standard & Poor’s 500 Index higher for a third day, as French President Nicolas Sarkozy and German Chancellor Angela Merkel said they are convinced Greece will remain in the euro zone.

All 10 groups in the S&P 500 advanced. General Electric Co., Home Depot Inc. and Monsanto Co. rose at least 2.4 percent, pacing gains in companies most-tied to economic growth. The Dow Jones Transportation Average, a proxy for the economy, added 2 percent, as FedEx Corp. climbed 1.4 percent. Dell Inc. advanced 3.3 percent as the second-largest personal-computer maker approved an additional $5 billion for its stock repurchases.

The S&P 500 gained 1.4 percent to 1,188.68 at 4 p.m. New York time, rallying 3 percent in three days and erasing its drop on Sept. 9, which had been driven by speculation Greece could default. The index pared a gain of as much as 2.5 percent in the final minutes of trading today. The Dow Jones Industrial Average rose 140.88 points, or 1.3 percent, to 11,246.73.

“It’s a psychological lift,” Peter Sorrentino, a senior money manager at Huntington Asset Advisors in Cincinnati, said in a telephone interview. The firm oversees $14.8 billion. “The Europeans haven’t given up hope. It buys them another day. There’s a desire to keep the euro strong. The question is -- do they have the mechanism in place to avoid a domino effect?”

Concern the global economy was slipping back into a recession amid a worsening European-debt crisis triggered an 18 percent plunge in the S&P 500 between the end of April and Aug. 8. Since then, the index has rebounded 6.2 percent.

‘More Than Ever’

German Chancellor Merkel is convinced the future of Greece is inside the euro area, following a telephone conversation with Prime Minister George Papandreou and French President Sarkozy, government spokesman Steffen Seibert said. The fulfillment of Greece’s adjustment program is “more than ever” essential and is a condition for the payment of further aid tranches, Merkel said, according to an e-mailed statement.

Papandreou committed to meet deficit-reduction targets demanded as a condition for an international bailout, according to statements distributed by Athens and Paris, easing concerns Greece may default on its debt.

“It’s a relief rally,” John Carey, a Boston-based money manager at Pioneer Investments, said in a telephone interview. The firm oversees about $250 billion. “Over the last few days, there had been speculation that Germany was about to pull the plug and abandon the effort to keep Greece solvent and funded. Stocks have been beaten up. On the slightest bit of potentially good news, people tend to scoop up some of those bargains.”

Chinese Support

Stocks also rallied on optimism that China may support Europe. China is willing to buy the bonds of nations hit by the debt crisis, Caijing reported on its website today, citing Zhang Xiaoqiang, a vice chairman of the National Development and Reform Commission.

Earlier today, equities slumped after inventories in the U.S. rose less than forecast in July, indicating companies are bracing for a slowdown in demand. Separate data showed that retail sales in the U.S. unexpectedly stagnated in August as a lack of employment and limited income growth restrained demand, highlighting the risk the economy will stall.

The Morgan Stanley Cyclical Index of companies whose earnings are most-tied to economic growth gained 1.7 percent. GE advanced 2.5 percent to $15.79. Home Depot jumped 2.7 percent to $33.54. Monsanto climbed 3.1 percent to $69.47. FedEx added 1.4 percent to $76.01.

Dell, Yahoo

Dell increased 3.3 percent to $14.86. The repurchase plan adds to the $2.16 billion remaining from prior authorizations at the end of the fiscal second quarter, which ended in July. The Round Rock, Texas-based company spent $1.6 billion on buybacks through the first half of the year.

Yahoo! Inc. climbed 2.1 percent to $14.55 as investor Third Point LLC ramped up pressure on the company’s board, saying it may add to its 5.2 percent stake. Daniel Loeb, chief executive officer of Third Point, said he’d seek U.S. approval to buy more stock in a regulatory filing and criticized Chairman Roy Bostock’s oversight of the company in a letter today to Yahoo co-founder Jerry Yang.

Pessimism about U.S. stocks among newsletter writers increased to its highest point since March 2009, when the last bear market ended, spurring speculation equities will rebound.

The share of bearish publications tracked by Investors Intelligence rose to 40.9 percent yesterday from 37.6 percent a week earlier. When the proportion was last this high, the S&P 500 started a bull market rally that produced gains of as much as 102 percent.

‘Pretty Bad News’

“When you have bearish sentiment at a peak, it’s one good indication that you’ve shaken loose most of the people who are inclined to be rattled,” Bruce McCain, who helps oversee $22 billion as chief investment strategist at the private-banking unit of KeyCorp in Cleveland, said in a telephone interview. “We’ve had some pretty bad news out of Europe the past couple days, and yet the market’s been able to keep a little bit of a positive tilt to it.”

Edward Yardeni, chief investment strategist at Yardeni Research Inc., isn’t expecting an immediate rebound. He believes U.S. stocks will stay at current levels in 2011 as companies struggle to beat analyst estimates. S&P 500 earnings are poised to reach a record $99.74 a share this year, according to the average of securities industry estimates compiled by Bloomberg.

“For the S&P 500, I don’t expect we will cover much ground when we look at the trend over the rest of the year,” Yardeni said in an interview on Bloomberg Radio’s “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. “The main reason is that earnings estimates are just too high,” he said. “For the past nine quarters, industry analysts were too low and there were lots of positive surprises. That’s going to be a little more challenging going into the upcoming earnings season.”

--Editors: Jeff Sutherland, Michael P. 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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