Bloomberg News

Most U.S. Stocks Rise as Earnings Optimism Offsets Europe Woes

October 11, 2011

Oct. 11 (Bloomberg) -- Most U.S. stocks advanced, while the Standard & Poor’s 500 Index posted its smallest move since August, as optimism about third-quarter corporate earnings overshadowed concern Europe’s debt crisis is worsening.

Alcoa Inc., the biggest U.S. aluminum producer, rose 2.1 percent ahead of its results. Apple Inc., Bank of America Corp. and Caterpillar Inc. added at least 1.4 percent to pace gains among companies most-tied to the economy. Mosaic Co. jumped 4.3 percent as Credit Suisse Group AG said valuations for fertilizer shares are attractive. AMR Corp. rose 7.1 percent as American Airlines joined its bigger U.S. peers with deeper seating cuts.

Almost seven stocks rose for every five that fell on U.S. exchanges at 4 p.m. New York time. The S&P 500 added 0.1 percent to 1,195.54. The benchmark gauge traded within a 1 percent range between its high and low level for the day, the narrowest since July 26. The Dow Jones Industrial Average retreated 16.88 points, or 0.2 percent, to 11,416.30 today.

“The markets have shrugged off some of the pessimism,” Peter Tuz, who helps manage about $800 million as president of Chase Investment Counsel Corp. in Charlottesville, Virginia, said in a telephone interview. “We’re seeing a recovery in groups that have really taken it on the chin. Only time will tell if earnings won’t be quite as bad as we all feared.”

The S&P 500 has fallen as much as 19 percent from its three-year high in April through Aug. 3, on a closing basis, amid concern about Europe’s debt crisis. Gauges of financial, commodity and industrial shares in the index slumped more than 26 percent during that period. The S&P 500 last week rose from the threshold of a bear market, and yesterday rallied 3.4 percent, on optimism Europe will tame its crisis.

Earnings Season

Earnings per share for the S&P 500, excluding financial companies, rose 14 percent in the third quarter, according to analysts’ estimates compiled by Bloomberg. Still, it’s the smallest gain since the end of 2009, the data showed.

Alcoa, the first company of the Dow to report results for the third quarter, climbed 2.1 percent to $10.30 in regular trading. The shares tumbled 4.8 percent to $9.81 at 5:08 p.m., after the earnings were released. The largest U.S. smelter of aluminum reported third-quarter profit that trailed analysts’ estimates as production costs increased.

Excluding restructuring costs, earnings were about 14 cents a share, New York-based Alcoa said in a statement. The average estimate of 15 analysts surveyed by Bloomberg was for 22 cents. Sales increased 21 percent to $6.4 billion. The average of nine analysts’ estimates was for $6.23 billion.

Economic Outlook

Aluminum for immediate delivery on the London Metal Exchange has declined 11 percent in 2011, erasing earlier gains, amid concerns about the economic outlook in the U.S. and Europe, hampering Alcoa’s efforts to boost earnings.

Benchmark gauges fell earlier today after European Central Bank President Jean-Claude Trichet said the debt crisis threatens the financial system. S&P said it no longer sees 2012 as a “turnaround year” for Spanish banks and the rating company expects problematic assets to “continue accumulating during 2012 and potentially into the first months of early 2013.”

After the close of regular U.S. trading, Slovak lawmakers failed to approve an overhaul of Europe’s bailout fund, toppling the government. Smer, the largest opposition party, which didn’t back the legislation today, will support the changes in a second vote, ensuring it will pass, party leader Robert Fico told reporters in the capital Bratislava. Slovakia is the only country in the 17-nation euro area that hasn’t ratified the measures.

‘Systemic Risk’

“The key overhang is the systemic risk,” Eric Teal, chief investment officer at First Citizens Bancshares Inc., which manages $4 billion in Raleigh, North Carolina, said in a telephone interview. “Given the shock that occurred in 2008, investors are focused on capital preservation as opposed to identifying opportunities. Some relief might unfold as we head into earnings season.”

The Morgan Stanley Cyclical Index of companies most-tied to economic growth added 1 percent. The Dow Jones Transportation Average, a proxy for the economy, gained 0.7 percent. The KBW Bank Index rose 0.6 percent. Apple increased 3 percent to $400.29. Bank of America climbed 1.4 percent to $6.37. Caterpillar jumped 1.9 percent to $80.66.

Fertilizer producers advanced after Credit Suisse said the industry’s valuations “look highly compelling.” Mosaic added 4.3 percent to $55.77. CF Industries Holdings Inc. climbed 4.6 percent to $146.81.

AMR Surges

The Bloomberg U.S. Airlines Index of 10 stocks gained 2.8 percent. AMR surged 7.1 percent to $2.71. The fourth-quarter capacity reduction of 3 percent means that 2011 costs for flying each seat a mile will increase “modestly” beyond the forecast of as much as 10.1 percent provided on Sept. 21, Fort Worth, Texas-based American said yesterday in a statement.

Companies in the S&P 500 least-tied to economic growth retreated. Gauges of utility and telephone providers in the benchmark gauge lost at least 1 percent.

Solar shares tumbled after Raymond James Financial Inc. cut estimates for the group, citing “drastically” reduced pricing and margin assumptions. First Solar Inc. fell 6.5 percent, the most in the S&P 500, to $55.91. SunPower Corp. slid 2.5 percent to $8.24.

--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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