Bloomberg News

U.S. Stocks Advance on European Debt Optimism, Economic Data

October 08, 2011

Oct. 8 (Bloomberg) -- U.S. stocks rose this week, driving the Standard & Poor’s 500 Index up from the threshold of a bear market, amid optimism European leaders will tame the region’s debt crisis and after American economic data improved.

Equities fell yesterday after Fitch Ratings cut Italy and Spain’s debt ratings, overshadowing faster-than-estimated U.S. job growth. Raw-material producers in the S&P 500 surged 6.2 percent this week, the most among 10 groups, while energy stocks and companies reliant on discretionary consumer spending climbed more than 3.4 percent. Hewlett-Packard Co. and Cisco Systems Inc. jumped at least 7.4 percent, leading gains in the Dow Jones Industrial Average.

The S&P 500 advanced 2.1 percent to 1,155.46, breaking a two-week losing streak. It surged 6 percent between Oct. 3 and Oct. 6, the biggest three-day rally since August. The Dow rose 189.74 points, or 1.7 percent, to 11,103.12 this week.

“Improved clarity and certainty that the Europeans are moving towards a solution was the main driver of markets for the week,” Chad Morganlander, a Florham Park, New Jersey-based money manager at Stifel Nicolaus & Co., which oversees about $110 billion in client assets, said in a telephone interview. “Even with the better-than-expected jobs number, the focus is entirely on European policy makers making the correct decisions over the next several weeks.”

20% Drop

Stocks rebounded as European Central Bank President Jean- Claude Trichet announced a bond-purchase program to tackle the debt crisis and European Commissioner Olli Rehn said there is an “increasingly shared view” that the region needs a coordinated approach. The S&P 500 closed under 1,100 on Oct. 3 for the first time in more than a year, leaving the gauge within 1 percent of a 20 percent decline since April.

Stocks halted a three-day rally yesterday after Italy and Spain, the euro region’s third- and fourth-largest economies, were downgraded by Fitch Ratings on concern they will struggle to improve their finances as Europe’s debt crisis intensifies.

The S&P 500 fell 0.8 percent yesterday. It had risen as much as 0.6 percent after American payrolls rose by 103,000 in September, beating the median economist projection of 60,000 in a Bloomberg survey. The jobless rate stayed at 9.1 percent.

“The jobs numbers were not spectacular by any stretch of the imagination, but they offered a little relief that we aren’t slipping back into recession,” Bruce Bittles, chief investment strategist at Milwaukee-based Robert W. Baird & Co., which oversees $85 billion, said in a telephone interview. “Unless the economy moves above 1 percent growth rate, earnings are going to come under pressure next year.”

Economic Reports

Reports this week showed manufacturing in the U.S. unexpectedly accelerated in September as production picked up. The Commerce Department said construction spending in the U.S. rebounded in August, propelled by the biggest jump in state and local government outlays in more than two years.

Companies most-tied to the economy rallied this week, with the Morgan Stanley Cyclical Index advancing 4.4 percent. Raw- material producers rallied after the S&P GSCI Index of 24 commodities jumped 2.6 percent, rebounding from a 10-month low.

Hewlett-Packard surged 11 percent to $24.88, its biggest one-week rally since March 2009. Chief Executive Officer Meg Whitman said the company aims to decide whether to spin off its personal-computer division by the end of October and won’t look for big takeover targets in the software industry. Cisco, the largest maker of networking gear, climbed 7.5 percent to $16.66.

F5, Yahoo

F5 Networks Inc. gained the most in the S&P 500, adding 20 percent to $85.01. Jason Ader, an analyst at William Blair & Co., said he expects the software maker to report improved fourth-quarter earnings as demand for its website-performance products increases.

Yahoo! Inc. surged 17 percent to $15.47, the biggest weekly increase since November 2008, amid takeover speculation. Microsoft Corp. isn’t anywhere close to making an offer for Yahoo and senior executives of the software maker aren’t involved in discussions, two people familiar with the matter said. The shares rose 10 percent on Oct. 5 after Reuters said Microsoft may make an offer.

Monsanto Co. rose 18 percent, the second-biggest S&P 500 gain, to $70.93. The world’s largest seed company reported a smaller loss in the fiscal fourth quarter than analysts estimated and said 2012 earnings will rise as much as 16 percent. It was boosted to “overweight” from “neutral” by JPMorgan Chase & Co., which said the company has “a high probability of reporting sharply improved earnings” next year.

Apple, Alcoa

Apple Inc. slipped 3 percent to $369.80 as co-founder and former Chief Executive Officer Steve Jobs died a day after the company’s iPhone 4S was introduced. The world’s most valuable technology company declined for seven straight days through Oct. 4, its longest losing streak since January 2009.

Alcoa Inc., the largest U.S. aluminum producer, added 1.5 percent to $9.71. It will become the first Dow company to report quarterly results on Oct. 11. Third-quarter profits for S&P 500 companies are projected to have grown 12 percent, according to average analyst forecasts compiled by Bloomberg.

The Chicago Board Options Exchange Volatility Index, also known as VIX, slumped 16 percent to 36.20 after advancing the prior two weeks. The gauge of S&P 500 options prices jumped a record 160 percent in the third quarter.

“We have the macroeconomic overhang from Europe, but the data from the U.S. is coming in a little better, so that’s the battle ground,” Donald Selkin, New York-based chief market strategist at National Securities Corp., which manages about $3 billion, said in a telephone interview. “We’re going to muddle along until we get the third-quarter earnings reports for more insight.”

--With assistance from Nikolaj Gammeltoft and Jeff Kearns in New York. Editor: Nick Baker

To contact the reporters on this story: Kaitlyn Kiernan in New York at; Inyoung Hwang in New York at

To contact the editor responsible for this story: Nick Baker at

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