Bloomberg News

S&P 500 Posts Third-Biggest Gain Since 2009 Amid Europe Optimism

September 17, 2011

Sept. 17 (Bloomberg) -- U.S. stocks advanced, driving the Standard & Poor’s 500 Index to the third-biggest weekly gain since 2009, as government officials and central bankers took steps to ease the European debt crisis.

Dell Inc. climbed 8.8 percent after boosting its share buyback program, helping send technology companies in the S&P 500 to a 7.1 percent increase, the most since July 2009. Hartford Financial Services Group Inc. rallied 14 percent after Credit Suisse Group AG boosted its rating, and Aetna Inc. advanced 9.3 percent after saying profit will probably beat its forecast. Goodrich Corp. surged 10 percent amid speculation United Technologies Corp. may buy the company.

The S&P 500 climbed 5.4 percent to 1,216.01 this week, trimming its 2011 loss to 3.3 percent. The Dow Jones Industrial Average increased 516.96 points, or 4.7 percent, to 11,509.09, leaving it down 0.6 percent since Dec. 31.

“It looks like the various political leaders and finance leaders are getting together and working in a consorted fashion, which is what’s necessary to get through this situation,” Peter Jankovskis, who helps manage about $2.6 billion at Oakbrook Investments in Lisle, Illinois, said in a telephone interview. “The equity market is likely to move higher here, and I think we will see a rally by year’s end.”

The S&P 500 climbed to the highest level since Aug. 31 after European Central Bank President Jean-Claude Trichet pressed euro-area governments yesterday to take decisive action to halt the debt crisis. Two days ago, the ECB bought more time by extending an emergency lifeline to banks, driving the week’s biggest advance in the stock market. French President Nicolas Sarkozy and German Chancellor Angela Merkel said they are convinced Greece will remain in the euro zone.

Stock Valuations

Stocks have recovered after the S&P 500 sank to 1,119.46 on Aug. 8, down 11 percent for the year. The retreat drove the index to 12.2 times reported earnings, the cheapest valuation since March 2009, according to data compiled by Bloomberg. Companies most-tied to the economy rallied this week, with the Morgan Stanley Cyclical Index advancing 5.5 percent. Intel Corp., Home Depot Inc. and General Electric Co. led gains in the Dow, increasing at least 8.2 percent.

“Headlines from Europe are certainly driving the short- term direction of the market,” Peter Vanderlee, a money manager at ClearBridge Advisors, a unit of Baltimore-based Legg Mason Inc., said in a telephone interview. Legg Mason manages about $640 billion. “We don’t have a magic bullet for solving Europe’s woes, but against that backdrop, having a portfolio with companies that tend to be more quality-based, have international exposure, it dampens a lot of that volatility.”

EBay, Dell

Technology shares rose the most among 10 S&P 500 industries, led by EBay Inc., the world’s largest online marketplace. The shares climbed 18 percent to $33.69. Dell, the second-largest personal-computer maker, added 8.8 percent to $15.20. Dell added $5 billion to its stock repurchase program, citing a resurgence in cash flow.

“Valuations in that space are exceedingly attractive,” Mark Luschini, chief investment strategist at Philadelphia-based Janney Montgomery Scott LLC, which manages $54 billion, said during a Sept. 16 Bloomberg Television interview. “And of course we know that business investment and spending on software and hardware has been the one bright spot in terms of economic activity over the last couple of quarters.”

Technology companies in the index are trading at 12.3 times estimated 2011 income, according to data compiled by Bloomberg. That compares with the average price-earnings ratio using analyst estimates for the current year of 15.4 between March 9, 2009, when the bull market began, and April 29 of this year, when the S&P 500 peaked.

Hartford, Aetna

Hartford was raised by Credit Suisse to “outperform” from “neutral.” The shares gained 14 percent, the most among insurers in the S&P 500, to $18.94. Financial companies in the index advanced 6 percent.

Aetna shares climbed 9.3 percent to $41.53 in its biggest weekly rally since February. The third-largest U.S. health insurer said full-year profit will probably beat its forecast as demand for medical care continues to be lower than previous expectations, helping to contain costs.

Goodrich rallied 10 percent to $92.89, the highest price since Aug. 1. After U.S. exchanges closed yesterday, three people with knowledge of the matter said United Technologies is in talks to buy the aerospace equipment maker Goodrich. A deal may be announced as soon as next week, said one of the people, who declined to be identified because the discussions are private. Goodrich is the most likely of the takeover targets United Technologies is studying, one person said.

Rockwell Collins Inc., Textron Inc. and Tyco International Ltd. gained amid speculation United Technologies is also evaluating them. Rockwell surged a record 17 percent to $56.21. Textron jumped 22 percent, the most since April 2009, to $18.63. Tyco increased 10 percent, the most since February 2009, to $43.70.

Netflix Inc., the mail-order and online film-rental service, fell the most in the S&P 500 after cutting its U.S. subscriber forecast following a price increase. Netflix slid 24 percent, the most since October 2004, to $155.19.

--With assistance from Inyoung Hwang in New York. Editor: Nick Baker

To contact the reporter on this story: Whitney Kisling in New York at wkisling@bloomberg.net

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


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