Bloomberg News

Stocks, Commodities Rise on Earnings, Economy; Euro Erases Drop

October 24, 2011

Oct. 24 (Bloomberg) -- Stocks surged, almost erasing the 2011 loss in the Standard & Poor’s 500 Index, as Europe made progress in debt-crisis talks, Caterpillar Inc.’s earnings beat forecasts and takeovers lifted health-insurance and software companies. Commodities rose on signs of Asian growth.

The S&P 500 advanced 1.3 percent to 1,254.19 at 4 p.m. in New York as Caterpillar rallied 5 percent. Healthspring Inc. and RightNow Technologies Inc. surged at least 19 percent after agreeing to be bought. Industrial metals jumped the most in three years in London and oil climbed to a two-month high above $91 a barrel. The euro added 0.2 percent, reversing an earlier loss. Treasuries fell.

Stocks and commodities gained after reports showed China’s manufacturing may grow in October for the first time in four months and Japanese exports rose more than expected last month. European leaders yesterday held their 13th crisis summit in 21 months, debating how to cut Greece’s debt burden, boost the firepower of the region’s bailout fund and bolster banks ahead of another meeting on Oct. 26.

“It’s green lights here,” Philip Orlando, the New York- based chief equity market strategist at Federated Investors Inc., said in a telephone interview. His firm oversees about $355 billion. “The market recognizes that Europe has developed a sense of urgency. Companies continue to report better-than- expected earnings. The fact that there’s an M&A cycle going on is telling us that the economy is growing, companies are flush with cash and stocks are cheap.”

Commodity, Financial Stocks

Gauges of commodity, financial and technology companies climbed at least 1.9 percent to lead gains among the 10 main industries in the S&P 500. Caterpillar had the best advance in the Dow Jones Industrial Average, while Alcoa Inc. and Bank of America Corp. also rallied at least 3.6 percent to lead the 30- stock average up 104.83 points, or 0.9 percent, to 11,913.62. The Dow extended its 2011 advance to 2.9 percent and the Nasdaq Composite Index turned higher for the year with a 1.8 percent year-to-date gain.

The S&P 500 has rebounded about 14 percent from a 13-month low on Oct. 3, trimming its year-to-date loss to less than 0.3 percent. The index is up almost 11 percent in October, poised for its best month since 1991, amid improving earnings and optimism that European leaders will succeed in halting the spread of the region’s debt crisis.

Earnings-per-share have topped analysts’ average estimates at 73 percent of the 113 companies in the index that reported earnings since Oct. 11, Bloomberg data show. Net income has grown 14 percent for the group and sales have risen 9.7 percent.

DeMark’s Prediction

Tom DeMark, the creator of indicators to show turning points in markets, said last week that the S&P 500 would climb to 1,254 before reversing and falling more than 5 percent. His prediction last month that a decline in the index that started Sept. 16 would end at 1,076 proved prescient when the gauge bottomed at 1,074.77. DeMark spoke in an interview with Bloomberg on Oct. 18.

"There’s not that much more upside in the market," DeMark said in an interview today. "The market top is going to be when we’ve had four or five days of successively higher closes on the S&P 500 from today’s close," he said. "If that happens then we go down very hard."

Caterpillar, the world’s largest maker of construction and mining equipment, posted third-quarter net income that topped analysts’ estimates amid growing demand for shovels and drills used to dig up metals.

Homeowner Help

All but one of 24 stocks in the KBW Bank Index advanced and all 12 companies in an S&P 500 index of homebuilders rose. The Federal Housing Finance Agency said it will eliminate fees and relieve banks of certain risks as part of a plan to help homeowners refinance their mortgages. The plan expands the Home Affordable Refinance Program by allowing homeowners to refinance regardless of how much their house has fallen in value. Before today, the program was limited to borrowers whose mortgages were no greater than 125 percent of the value of their homes.

Federal Reserve Bank of New York President William C. Dudley said the central bank wants to keep mortgage interest rates from rising too much and may do more to hold down borrowing costs. The Fed’s decision last month to reinvest proceeds from maturing housing debt into mortgage-backed securities was a “signal that we do have concern about the level of mortgage spreads,” Dudley said today. “Clearly we’ve indicated our interest in supporting the housing market.”

It’s “possible” the central bank could start a third round of asset purchases to stimulate growth, Dudley said in response to audience questions after a speech to the Bronx Chamber of Commerce.

Treasury Yields

Ten-year Treasury note yields rose one basis point today to 2.23 percent and rates on two-year notes increased one basis point to 0.28 percent.

Corporate bond investors are driving down relative yields at the fastest pace in more than two years as signs the global economy will avoid falling into recession boost confidence borrowers will be able to meet debt payments. Yields on company debentures of all ratings from the U.S. to Europe and Asia have tightened 28 basis points in October relative to government debt, the most since September 2009, according to Bank of America Merrill Lynch index data.

U.S. gross domestic product, the value of all goods and services produced, rose at a 2.5 percent annual rate in the third quarter after advancing 1.3 percent in the previous three months, according to the median forecast of 68 economists surveyed by Bloomberg News before the Commerce Department’s Oct. 27 release. Orders for business equipment increased in September and new-home sales stabilized, other data may show this week.

BHP, Rio Tinto

The Stoxx Europe 600 Index increased 1.3 percent to the highest level since Aug. 4. BHP Billiton Ltd. and Rio Tinto Group added more than 5 percent to pace an advance in mining companies. Nobel Biocare Holding AG surged 14 percent in Zurich following a report that buyout firms are looking at the maker of dental implants.

German Chancellor Angela Merkel will seek backing from lawmakers to bolster the euro bailout fund on the same day she heads to another European summit. Leveraging the rescue fund to more than 1 trillion euros ($1.4 trillion) and how far to cut Greece’s debt load emerged as two main hurdles in the way of a deal to stop the debt crisis at the Oct. 26 summit.

National Bank of Greece SA and Alpha Bank SA tumbled more than 19 percent today as a Greek government official said the euro area is committed to seeking deeper losses for holders of Greek bonds. The official spoke on condition of anonymity.

’Haircuts’

The world’s biggest banks are squabbling with European leaders over the size of losses, or “haircuts,” on Greek debt, two people with knowledge of the discussions said. The financial companies, represented by the Institute of International Finance, proposed a loss of 40 percent on Greek debt, said one of the people, who declined to be identified because talks are confidential. The EU is calling on investors to forfeit as much as 60 percent, making a compromise at 50 percent possible, the person said.

The euro advanced 0.2 percent to $1.3923, the strongest in more than a month. Foreign-exchange strategists have ceased cutting forecasts for the currency, drawing the line at $1.34, according to estimates compiled by Bloomberg since Oct. 6.

All 16 major peers strengthened versus the dollar, led by gains of at least 2 percent by Mexico’s peso and the South African rand.

European Bonds

Spanish 10-year yields rose seven basis points today, widening the spread over similar-maturity German bunds to 342 basis points. Italian 10-year bonds also declined, sending yields up six basis points to 5.94 percent.

On the London Metal Exchange, an index measuring copper, aluminum, nickel, lead, zinc and tin rose 5.9 percent, the biggest gain since Oct. 29, 2008. Copper futures rallied 7 percent to $3.449 a pound in New York, while nickel surged 6.4 percent in London and lead and aluminum advanced at least 4.4 percent. China is the biggest buyer of industrial metals. The S&P GSCI index of 24 commodities gained 2.4 percent as 22 of 24 materials it tracks advanced. Oil in New York climbed 4.4 percent to $91.27 a barrel.

Japan’s Nikkei 225 Stock Average added 1.9 percent after the Ministry of Finance said exports rose 2.4 percent last month from a year earlier. The median estimate of 26 economists surveyed by Bloomberg was for a 1 percent increase after a 2.8 percent gain in August.

Emerging Markets

The MSCI Emerging Markets Index advanced 3.6 percent, the most in almost a month. Brazil’s Bovespa index surged 3 percent and Argentina’s benchmark gauge climbed 2.3 percent.

Hong Kong’s Hang Seng Index climbed 4.1 percent and the Shanghai Composite Index gained 2.3 percent after HSBC Holdings Plc and Markit Economics reported a preliminary October reading of 51.1 for a index of Chinese purchasing managers, the highest in five months.

Turkey’s lira was 1.8 percent higher against the dollar while the ISE National 100 Index of shares fell 0.9 percent. Turkey was struck yesterday by the most powerful earthquake in more than a decade.

--With assistance from Shani Raja in Sydney, Matthew Brown, Claudia Carpenter, David Goodman, Andrew Rummer, Gavin Serkin and Maria Kolesnikova in London, Shiyin Chen in Singapore and Mary Childs, Sapna Maheshwari, Yi Tian, Lu Wang and Caroline Salas Gage in New York. Editors: Michael P. Regan, Nick Baker

To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net; Rob Verdonck in London at rverdonck@bloomberg.net

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


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