Bloomberg News

U.S. Stocks Rise as S&P Sees Longest Weekly Rally Since February

October 22, 2011

Oct. 22 (Bloomberg) -- U.S. stocks rose this week, driving the Standard & Poor’s 500 Index to its longest winning streak since February, amid optimism Europe’s leaders will announce a plan to contain the debt crisis and after McDonald’s Corp. joined companies beating profit estimates.

Financial shares in the S&P 500 added 3.9 percent as European finance ministers began negotiations to prevent a Greek default and shield banks. McDonald’s rose 2.7 percent, while Bank of America Corp. and Goldman Sachs Group Inc. climbed more than 4.3 percent after their quarterly reports. PulteGroup Inc. jumped 11 percent as data showed sentiment among homebuilders improved more than forecast. El Paso Corp. soared 28 percent after Kinder Morgan Inc. agreed to buy it.

The S&P 500 climbed 1.1 percent to 1,238.25, the highest since Aug. 3, and has risen three straight weeks. It has surged 13 percent since Oct. 3, when it closed within 1 percent of a bear market, or 20 percent plunge, from its high in April. The Dow Jones Industrial Average rose a fourth straight week, gaining 164.30 points, or 1.4 percent, to 11,808.79.

“We’ve had a combination of good economic news, better news out of Europe and third-quarter corporate earnings are coming along pretty well,” Philip Orlando, the New York-based chief equity market strategist at Federated Investors Inc., said in a phone interview. His firm oversees about $355 billion.

Equities rose yesterday as European finance ministers approved a 5.8 billion euro ($8.1 billion) loan to Greece, and France retreated in a clash with Germany over expanding the bailout fund. Talks continue through Oct. 26. The S&P 500 also gained after 74 percent of companies that reported quarterly results topped the average analyst projection.

JPMorgan Tops BofA

Financial stocks rallied the most out of 10 groups in the S&P 500 this week following gains in European lenders. Bank of America, which has dropped 52 percent this year for the worst performance in the Dow, jumped 4.4 percent to $6.46. It posted third-quarter net income of $6.23 billion because of higher revenue, better credit quality and one-time gains.

JPMorgan Chase & Co. added 4.8 percent to $33.42. It topped Bank of America as the largest U.S. bank by assets and posted the most third-quarter trading revenue among Wall Street firms that has reported results so far, leading for a fourth consecutive period.

Goldman Sachs climbed 5.5 percent, the most since November, to $102.09 as investors looked past the bank’s second quarterly loss since 1999, focusing on gains in trading revenue and prospects for a rebound in underwriting and takeovers.

Morgan Stanley

Morgan Stanley gained 12 percent, the most since July, to $17.02. The owner of the world’s largest brokerage reported profit that beat analysts’ estimates on a $3.4 billion accounting gain and higher revenue from stock trading.

McDonald’s rose 2.7 percent to a record $92.32. The world’s biggest restaurant chain reported third-quarter earnings of $1.45 a share, beating the $1.43 average analyst estimate, as lower-priced items boosted U.S. sales.

Profit for S&P 500 companies climbed 16 percent in the third quarter and will rise 18 percent to a record $99.25 for all of 2011, analyst estimates compiled by Bloomberg show.

“The earnings so far have implied that we’re not in a recession,” Ralph Shive, the South Bend, Indiana-based manager of the $1.65 billion Wasatch-Large Cap Value Fund, said in a telephone interview. “They were pretty stable and a slight positive as opposed to falling off the cliff.”

Builders Rise

Homebuilders advanced as data showed the U.S. industry was less pessimistic than forecast in October as near record-low borrowing costs and price decreases raised hopes the market will improve in the next six months. PulteGroup rallied 11 percent to $4.90. D.R. Horton Inc. increased 8.7 percent to $10.83.

Companies most-tied to the economy gained this week as the Morgan Stanley Cyclical Index advanced 1.8 percent to its highest level since Aug. 31. Ford Motor Co. added 6.1 percent to $12.26. Sears Holdings Corp., the largest U.S. department-store chain, increased 4.8 percent to $74.95.

Leon Cooperman, the chairman of hedge fund Omega Advisors Inc., said the U.S. economy will avoid a recession and American equities offer “appealing valuations.”

“Stocks are cheap relative to history, relative to inflation, relative to interest rates,” he said during a presentation at the Value Investing Congress in New York on Oct. 18. “The recent facts suggest the economy is accelerating moderately.”

Highest Since 2002

El Paso Corp. surged 28 percent to $24.99, its highest price since May 2002. Kinder Morgan agreed to buy the company for $21.1 billion, the energy industry’s biggest transaction in more than a year, to create the largest natural-gas pipeline network in the U.S. Kinder Morgan gained 8.7 percent, the biggest weekly gain since its initial public offering in February, to $29.22.

Technology stocks lost the most in the S&P 500, slipping 2.2 percent, after Apple Inc. missed profit forecasts and flooding in Thailand caused the worst supply disruptions since the March earthquake that crippled Japan.

Apple slipped 6.9 percent, the most since July 2010, to $392.87. The maker of iPhones and iPads missed the average analyst profit estimate for the first time since at least 2004, according to data compiled by Bloomberg.

Western Digital Corp. lost 8.4 percent to $25.97. The maker of disk drives expects a loss this quarter and forecast sales below analysts’ predictions as the worst flooding in five decades hobbles production in Thailand.

Seagate Technology Plc surged 31 percent, the most since March 2009, to $15.42. The company may gain market share from Western Digital because Seagate will recover from the flooding two quarters faster, according to ThinkEquity LLC’s Rajesh Ghai.

“Seagate’s capacity does not appear to be as severely impaired,” Ghai wrote in a report yesterday.

--With assistance from Rita Nazareth and Whitney Kisling in New York. Editor: Nick Baker

To contact the reporters on this story: Kaitlyn Kiernan in New York at; Nikolaj Gammeltoft in New York at

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

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