Bloomberg News

U.S. Stocks Rise as ECB’s Stark Predicts Crisis to Be Controlled

November 07, 2011

Nov. 7 (Bloomberg) -- U.S. stocks rose, following the first weekly retreat in the Standard & Poor’s 500 Index since September, as the European Central Bank’s Juergen Stark said the region’s debt crisis will be under control in two years.

Home Depot Inc. and Hewlett-Packard Co. gained at least 2.6 percent for the biggest advances in the Dow Jones Industrial Average. Amgen Inc., the largest biotechnology company, jumped 5.9 percent after saying it is planning to buy back as much as $5 billion in shares. First Solar Inc., the world’s largest maker of thin-film solar panels, dropped 3.7 percent as two Chinese solar companies cut forecasts for shipments.

The S&P 500 advanced 0.6 percent to 1,261.12 at 4 p.m. New York time, recovering from an earlier decline of as much as 1 percent. The benchmark gauge slumped 2.5 percent last week. The Dow increased 85.15 points, or 0.7 percent, to 12,068.39 today.

“The Europeans are doing some heavy lifting,” Alan Gayle, a senior strategist at RidgeWorth Capital Management in Richmond, Virginia, which oversees about $44 billion, said in a telephone interview. “The leadership has a good understanding of what needs to be done and they’ve set a goal for themselves. They are now going through the sausage-making process of crafting a solution.”

Italian 10-year borrowing costs surged to a euro-era record amid concern the region’s third-largest economy is struggling to manage its debt loads, while growth in Europe is faltering. Investors are betting Prime Minister Silvio Berlusconi may be forced to resign if he fails to win majority support in tomorrow’s vote on the 2010 budget report.

Under Control

Stark, a member of the ECB’s executive board, speaking at an event in Lucerne, Switzerland, said the debt crisis may be under control within two years to the point there will be “no need for further political actions.”

“There’s maybe a sense that enough has been done in Europe,” James Paulsen, chief investment strategist at Minneapolis-based Wells Capital Management, which oversees about $333 billion, said in a telephone interview. “It’s certainly not the cure, but it may calm down the market.”

Greek Prime Minister George Papandreou agreed yesterday to step down, paving the way for the creation of a new government to get international aid and avert a default. European finance chiefs met in Brussels today to work on a plan to raise the region’s bailout fund.

Stocks slumped on Oct. 31 and Nov. 1 as Papandreou announced his desire to hold a vote on a European Union bailout. After rallying two straight days, the S&P 500 dropped on Nov. 4 as the Group of 20 nations failed to agree on increasing the International Monetary Fund’s resources to fight the crisis.

Home Depot Rallies

Some of the biggest companies rose today. Home Depot increased 2.6 percent to $37.34. Hewlett-Packard gained 3.4 percent to $27.88.

Amgen rallied 5.9 percent to $58.43. The stock repurchase plan, amounting to about 10 percent of the company, is part of a current $10 billion buyback program, Amgen said in a regulatory filing today. The drugmaker will raise debt to help fund it. The offer starts tomorrow at a range of $54 to $60 a share, and Amgen will have about $2 billion of net debt afterwards, said Mark Schoenebaum, an analyst with ISI Group.

Dish Network Corp., the second-largest U.S. satellite-TV provider, gained 5 percent to $24.66, after awarding a special dividend that allayed investors’ concerns the company will invest billions in a wireless network.

Jefferies Cuts Holdings

Jefferies Group Inc. added 1.4 percent to $12.24. The New York-based firm cut gross holdings in sovereign securities of Portugal, Italy, Ireland, Greece and Spain by almost 50 percent since last week’s close of trading, to show how easily it can reduce funds at risk. Jefferies slumped 18 percent last week as Egan-Jones Ratings Co. downgraded the firm’s debt, citing large “sovereign obligations” relative to equity.

Financial shares tumbled the most in the S&P 500 last week, losing 5.4 percent, on concern about potential losses from Europe and as MF Global Holdings Ltd. filed for bankruptcy protection after making bets on European sovereign debt. CME Group Inc. is reducing the initial margin required to back futures trades to ease the bulk transfer of accounts held by MF Global customers.

“The decision to roll back margin requirements is a positive,” Mark Grant, a managing director at Southwest Securities Inc. in Fort Lauderdale, Florida, said in an e-mail. “Otherwise there would have been a tremendous amount of margin calls, which could have caused a good amount of selling in other markets to pay for the margin calls.”

First Solar Declines

First Solar declined 3.7 percent to $47.74. Yingli Green Energy Holding Co. and Renesola Ltd. cut forecasts for shipments and wrote down inventory, the latest in a series of industry warnings. Solar companies around the world are cutting profit forecasts as plunging prices spurred on by a surge in Chinese manufacturing capacity crimps margins.

S&P 500 companies are poised to report the biggest annual sales increase on record even as analysts reduce their estimate for growth in 2012. Revenue in the benchmark gauge of American common equity will rise 11 percent to $1,052.42 a share in 2011, according to more than 10,000 forecasts compiled by Bloomberg.

Projections for next year have been cut 1 percent in the past month after 43 percent of S&P 500 companies from 3M Co. to Amazon.com Inc. missed third-quarter forecasts, the most since 2009, data show.

Record Gains

Bulls say record gains in sales mean the economy is doing well enough for equities to rally after price-earnings ratios fell 20 percent below the six-decade average. To bears, the deceleration in growth shows the European debt crisis is curbing the economy and that stocks will resume declines after the S&P 500 posted its biggest monthly rally since 1991.

“Everybody thinks the world’s coming to an end, but corporate America is doing great and it’s a function of good sales,” Eric Green, a Philadelphia-based fund manager at Penn Capital Management, which oversees about $6 billion, said in a telephone interview on Nov. 3. “It’s not unusual that you get these short-term slowdowns during panicky markets. The sales estimates coming down is a good thing because it allows to companies to meet or beat more easily.”

--With assistance from 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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