Bloomberg News

U.S. Stocks Rise Amid Takeovers as Caterpillar Beats Estimates

October 24, 2011

Oct. 24 (Bloomberg) -- U.S. stocks rallied, almost wiping out this year’s decline in the Standard & Poor’s 500 Index, amid takeover deals, higher-than-estimated earnings at Caterpillar Inc. and progress in talks to tame Europe’s debt crisis.

Gauges of commodity, financial and technology shares had the biggest gains in the S&P 500 among 10 groups, rising at least 1.9 percent. Caterpillar, the largest construction and mining-equipment maker, climbed 5 percent. RightNow Technologies Inc. surged 19 percent, while Healthspring Inc. soared 34 percent, on acquisitions. Alcoa Inc. added 3.4 percent as metals advanced on signs of growth in China and Japan.

The S&P 500 increased 1.3 percent to 1,254.19 as of 4 p.m. New York time, paring its 2011 retreat to 0.3 percent. The Dow Jones Industrial Average climbed 104.83 points, or 0.9 percent, to 11,913.62 today. The Nasdaq Composite Index gained 2.4 percent, erasing its year-to-date decline. The Russell 2000 Index of small companies advanced 3.3 percent.

“The world isn’t ending,” Keith Wirtz, who oversees $16.7 billion as chief investment officer at Fifth Third Asset Management in Cincinnati, said in a telephone interview. “If there’s any sentiment change after five months of market declines, you’re going to get a rebound in stock prices. The market is just hungry to get the European crisis behind us and focus on domestic news. We’re not in a recession.”

The S&P 500 has risen 11 percent so far in October, poised for its best monthly gain since 1991, after falling for five straight months. It rose from the threshold of a bear market early in October on steps by European leaders to support banks and higher-than-estimated earnings. The rebound brought the index above a price range where it had traded since August.

Turning Points

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. The index rose as high as 1,256.55 today. 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.”

Global stocks rallied today as European leaders in debt- crisis talks this weekend outlined plans to aid banks and ruled out tapping the European Central Bank’s balance sheet to boost the region’s rescue fund.

Complete Blueprint

Europe’s 13th crisis-management summit in 21 months also explored how to strengthen the International Monetary Fund’s role. The complete blueprint won’t come together until a summit in two days.

“Let’s hope this is decision time in Europe,” Richard Sichel, who oversees $1.6 billion as chief investment officer at Philadelphia Trust Co., said in a telephone interview. “We need to put this crisis behind us and get back to looking at U.S. corporate earnings.”

The Morgan Stanley Cyclical Index of companies most-tied to economic growth rallied 2.6 percent. The Dow Jones Transportation Average gained 1.8 percent. The KBW Bank Index added 2.9 percent. A gauge of homebuilders in S&P indexes rose 3.2 percent as 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.

Earnings Season

This week, 191 companies in the S&P 500 are scheduled to report quarterly results. Profit for all companies in the index climbed 16 percent during the third quarter, and will increase 18 percent to a record $99.34 a share for all of 2011, according to analyst estimates compiled by Bloomberg. About three quarters of the S&P 500 companies that reported results since Oct. 11 beat analysts’ projections, the data showed.

Caterpillar rallied 5 percent, the most in the Dow, to $91.77. The company said full-year profit will be $6.75 a share and sales will be at the top end of a previously forecast range of $56 billion to $58 billion.

United Parcel Service Inc., the largest provider of package deliveries and a proxy for the economy, and Amazon.com Inc., the world’s largest online retailer, are among companies scheduled to report results this week.

“We need to take the Armageddon scenario off the table,” Kevin Rendino, a money manager at New York-based BlackRock Inc., which oversees $3.3 trillion, said in an interview on Bloomberg Television’s “In the Loop” with Betty Liu. “Companies have done a really good job at managing expectations and then coming in OK because it is not as bad as we think it is.”

Takeover Deals

Some takeover deals helped lift equities today. RightNow Technologies surged 19 percent to $42.94. Oracle Corp. agreed to buy the company for $1.5 billion, gaining customer-service expertise to bolster a new Internet-based product. Healthspring jumped 34 percent to $53.71. Cigna Corp. agreed to buy the health maintenance organization for $3.8 billion in cash to expand the U.S. insurer’s Medicare business.

A gauge of raw material producers in the S&P 500 added 2.3 percent, the biggest gain within 10 industries, as the S&P GSCI Index of commodities rose 2.4 percent. Alcoa, the largest U.S. aluminum producer, gained 3.4 percent to $10.58.

China’s manufacturing may expand in October for the first time in four months, snapping the longest contraction since 2009, after a preliminary index of purchasing managers showed a rebound in new orders and output. The Chinese report, along with Japanese data today showing an increase in exports exceeding economists’ forecasts, signaled that Asia’s largest two economies are withstanding Europe’s sovereign debt crisis.

Economic Data

The U.S. economy probably grew in the third quarter at the fastest pace this year, economists said before a report this week. Nonetheless, Federal Reserve officials Janet Yellen and Daniel Tarullo last week said that more monetary stimulus may be needed. Fed Bank of New York President William C. Dudley today said the central bank has the option of starting a third round of asset purchases to stimulate growth.

“I’d argue that it’s not where we begin this week, but where we end this week,” Mike Ryan, the New York-based chief investment strategist at UBS Wealth Management Americas, said in a telephone interview. His firm oversees $774 billion. “We have a lot of earnings coming out, fairly important economic releases and we’ll see on Wednesday what if anything the EU is able to deliver. I’m still on the cautious side.”

Indexes of telephone, consumer staples and utility companies in the S&P 500, which are least-tied to the economy, retreated.

Kimberly-Clark Corp. lost 4.6 percent, the most in the S&P 500, to $69.65. The maker of Scott toilet paper and Huggies diapers cut the high end of its annual profit forecast amid lower demand in North America and some developed markets.

--With assistance from Kaitlyn Kiernan and Nikolaj Gammeltoft 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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