Bloomberg News

U.S. Stocks Rally, Briefly Erasing Dow’s 2011 Loss, on Europe

October 12, 2011

Oct. 12 (Bloomberg) -- U.S. stocks rose, briefly erasing the Dow Jones Industrial Average’s 2011 loss, as European leaders provided a road map to tame the debt crisis and the Federal Reserve said it discussed further asset purchases.

Financial and industrial shares rose the most among 10 groups in the Standard & Poor’s 500 Index. JPMorgan Chase & Co. and Bank of America Corp. jumped at least 2.7 percent, following a rally in European lenders. General Electric Co. and 3M Co. added more than 1.6 percent to pace gains among companies most- reliant on economic growth. PepsiCo Inc., the largest snack-food maker, increased 2.9 percent as profit beat analysts’ estimates.

The S&P 500 advanced 1 percent to 1,207.25 at 4 p.m. New York time, rallying 4.5 percent in three days. The index rose as much as 2.1 percent earlier before paring gains in the final hour of trading. The Dow climbed 102.55 points, or 0.9 percent, to 11,518.85. The 30-stock gauge is down 0.5 percent for 2011.

“The market doesn’t want to turn back lower,” Liam Dalton, chief executive officer of Axiom Capital Management Inc., in New York, which oversees $1.8 billion, said in a telephone interview. “The process in Europe is likely to be resolved. There are a lot of things that can go right or wrong. Still, we’re building off of what looks like an oversold low.”

The Dow has gained 8.1 percent since reaching this year’s closing low on Oct. 3 amid optimism European leaders will tame the region’s debt crisis and after American economic data improved. Before that, the gauge had slumped as much as 17 percent from this year’s high on April 29 amid concern that Europe’s crisis would slow down the economic recovery.

Trading Range

The S&P 500 had the biggest rally over seven days since March 2009, climbing 9.8 percent. The rebound has yet to bring the S&P 500 out of a trading range it’s been stuck in for more than two months. The benchmark index for U.S. stocks has fluctuated between 1,074.77 and 1,230.71 since Aug. 5 as investors remained cautious toward riskier assets amid speculation Greece will default on its debt.

“It feels like Charlie Brown and Lucy every time she put a football in front of him,” James Dunigan, who helps oversee $109 billion as chief investment officer in Philadelphia for PNC Wealth Management, said in a telephone interview. Cartoon character Charlie Brown is a perpetual loser in football and other pursuits. “Maybe the worst case scenario is off the table in Europe. Still, the question is -- whatever they do, will it be enough? I’m not sure I’m ready to declare victory yet.”

‘Coordinated Approach’

Global stocks rose today as European Commission President Jose Barroso called for a reinforcement of crisis-hit banks, the payout of a sixth loan to Greece and a faster start for a permanent rescue fund to master Europe’s debt woes. Barroso urged a “coordinated approach” to deliver a “significantly higher capital ratio of highest quality capital” for banks, while offering government funds only as a last resort.

Some Federal Reserve officials last month wanted to keep further asset purchases as an option to boost the economy as policy makers saw “considerable uncertainty” that U.S. growth will pick up, the Fed said today in minutes of the Sept. 20-21 session. The debate culminated in the Federal Open Market Committee’s decision to replace $400 billion of Treasuries in the central bank’s portfolio with longer-term debt to reduce borrowing costs.

“We’re believers that we’re probably going to avoid a recession,” Warren Koontz, head of U.S. large-cap value stocks at Loomis Sayles & Co. in Boston, which manages $150 billion, said in a telephone interview. “If people come to realize that economic growth isn’t as poor as sentiment or as stock prices have indicated, we probably could create some type of bottom.”

Most-Tied

The Morgan Stanley Cyclical Index of companies most-tied to economic growth added 2 percent. The Dow Jones Transportation Average rose 1.3 percent. The KBW Bank Index gained 3.3 percent. Bank of America added 3.3 percent to $6.58. JPMorgan gained 2.8 percent to $33.20. GE increased 1.6 percent to $16.40. 3M rallied 2.5 percent to $78.36.

PepsiCo jumped 2.9 percent to $62.70 after saying third- quarter profit rose 4.1 percent as sales of Frito-Lay products increased. Chief Executive Officer Indra Nooyi created a council in September to better coordinate sales of snacks and beverages after the company reduced its full-year profit forecast.

“The reason we’re bullish and why we’re having a different view of the market is because we’ve had a lot more faith in the ability of U.S. corporations and the U.S. economy to still navigate through a U.S. expansion, despite what looks like very, very scary headlines,” Thomas Lee, the chief U.S. equity strategist at JPMorgan, said in an interview on Bloomberg Television “In the Loop” with Betty Liu.

Liz Claiborne Soars

Liz Claiborne Inc. surged 34 percent, the most since 1987, to $6.84 after agreeing to sell its namesake and Monet brands to J.C. Penney Co. and its Kensie line to Bluestar Alliance as the company works to reduce debt. The transactions and the completion of the sale of Dana Buchman brand to Kohl’s Corp. are worth a total of $328 million in cash.

Alcoa Inc. fell 2.4 percent to $10.05. The first company in the Dow to report earnings this quarter posted profit that trailed estimates, saying European customers “dramatically” cut orders on economic uncertainty. Alcoa is grappling with rising production costs while the price of aluminum on the London Metal Exchange has fallen in the past two months.

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.

UBS AG raised its 2011 earnings forecast for companies in the S&P 500, citing stronger-than-forecast U.S. economic data. Thomas Doerflinger, a New York-based strategist, raised his profit estimate for the benchmark index to $96.64 a share from $95, saying earnings in the second half of the year will reflect higher economic growth expectations after U.S. manufacturing, auto sales, construction and payrolls data beat forecasts.

--With assistance from Lu Wang and Inyoung Hwang in New York. 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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