U.S. Stocks Advance Before Earnings as European Leaders Meet
January 10, 2012, 5:15 AM ESTBy Rita Nazareth
Jan. 9 (Bloomberg) -- U.S. stocks advanced, extending last week’s rally for the Standard & Poor’s 500 Index, as European leaders discussed shoring up the region’s currency and investors awaited the start of the fourth-quarter earnings season.
Measures of industrial, energy and financial shares had the biggest gains in the S&P 500 among 10 groups. Alcoa Inc., the largest U.S. aluminum producer, increased 2.9 percent before reporting its quarterly results. Broadcom Corp. rallied 2.5 percent as Deutsche Bank AG said soft fourth-quarter results for chipmakers create a buying opportunity for the industry.
The S&P 500 rose 0.2 percent to 1,280.70 at 4 p.m. New York time. The benchmark gauge for American equities gained 1.6 percent last week, the second-best start of a year since 2006. The Dow Jones Industrial Average climbed 32.77 points, or 0.3 percent, to 12,392.69. About 6 billion shares changed hands on U.S. exchanges, or 16 percent below the three month-average.
“We’ll see some earnings growth this year, but not a lot,” said Kevin Caron, a market strategist in Florham Park, New Jersey, at Stifel Nicolaus & Co, which has more than $107 billion in client assets. “As long as U.S. fundamentals continue to move in a positive direction and as long as investors are comforted by the actions taken to maintain liquidity in Europe, the markets will be more complacent.”
Equities rose as German Chancellor Angela Merkel and French President Nicolas Sarkozy sought to craft a plan for rescuing the euro over the next three months. Euro-area leaders may complete their new budget rulebook by Jan. 30, one month ahead of schedule, and are considering accelerating capital contributions to the bailout fund being set up this year to stem the debt crisis.
Earnings Estimates
U.S. corporations ended 2011 with the slowest profit growth in two years as the mending economy was met by a European slump that vexed companies more tied to global sales. S&P 500 companies, which beat analysts’ estimates in the previous 11 quarters, are forecast to report a 6 percent increase in per- share profit during the September-December period, according to projections compiled by Bloomberg.
American companies “are the cleanest dirty shirt but we have to ask the question to what extent are they being hit on revenue and to what extent can they continue to contain costs,” Mohamed El-Erian, the chief executive officer of Pacific Investment Management Co., the world’s largest manager of bond funds, said during an interview on Bloomberg Television’s “In the Loop” with Betty Liu.
Alcoa’s Results
Alcoa, the first Dow company to announce results for the fourth quarter, rose 0.3 percent to $9.45 at 5:09 p.m. New York time, after gaining 2.9 percent to $9.43 in regular trading. After the market close, Alcoa reported its first quarterly loss in more than two years as aluminum prices tumbled. The loss of 3 cents a share, excluding restructuring costs, matched the average projection from 18 estimates compiled by Bloomberg.
Seven out of 10 groups in the S&P 500 rose today, led by industries most tied to the economy. Caterpillar Inc. added 1.4 percent to $97.10. Schlumberger Ltd. advanced 1.5 percent to $68.82. Bank of America Corp. increased 1.5 percent to $6.27.
Semiconductor shares rallied after Deutsche Bank raised the industry to “overweight” from “equalweight.” Broadcom climbed 2.5 percent to $30.88. Intel Corp. gained 0.9 percent to $25.47. The Philadelphia Semiconductor Index rose 2 percent.
Netflix Inc. surged 14 percent to $98.18, for the biggest advance in the S&P 500. The owner of the streaming and DVD-by- mail service forecast it will attract millions of subscribers within a few years to the Internet film and television service it started in the U.K. and Ireland today, taking on Amazon Inc.’s Lovefilm.
M&A Deal
Inhibitex Inc. soared 140 percent, the biggest gain in the Russell 2000 Index, to $23.70. Bristol-Myers Squibb Co. agreed to buy the Alpharetta, Georgia-based biopharmaceutical firm to boost its position in hepatitis C medicines.
Other hepatitis C drug developers also rallied. Idenix Pharmaceuticals Inc. surged 37 percent to $9.66. Achillion Pharmaceuticals Inc. jumped 23 percent to $9.72.
Costco Wholesale Corp. lost 2.6 percent to $79.01 after Sanford C. Bernstein & Co. cut its rating for the largest U.S. warehouse-club chain to “underperform” from “market perform.”
GameStop Corp. dropped 3.5 percent to $23.99. The world’s largest video-game retailer cut its fourth-quarter and year comparable sales forecast.
CareFusion Corp. dropped 8.6 percent, the most in the S&P 500, to $23.28. The maker of infusion pumps and hospital supplies lowered the bottom end of its fiscal year earnings forecast.
Highest Levels
Rallies in stocks and gasoline will push prices toward the highest levels ever in 2012 even as U.S. Treasury yields hold near record lows.
So say Douglas Kass of Seabreeze Partners Management Inc., Citigroup Inc.’s Edward L. Morse and Christopher Low of FTN Financial, forecasters whose predictions for equities, energy and bonds proved prescient in 2011. Repeating the feat with their calls for 2012 would require an unprecedented breakdown in price relationships across markets after correlations reached the tightest levels ever.
“They can’t all be right,” Chad Morganlander, a Florham Park, New Jersey-based money manager at Stifel Nicolaus & Co., which oversees more than $107 billion in client assets, said in a telephone interview on Jan. 5. “Strategists provide a valuable role in the financial community, but flexibility of institutional and individual investors is paramount.”
--With assistance from Inyoung Hwang, Paul Burkhardt, Cordell Eddings and Nikolaj Gammeltoft in New York and Thomas Black in Dallas. 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
