Bloomberg News

U.S. Stocks Rise Amid Lower Borrowing Costs at Europe Auctions

January 12, 2012

Jan. 12 (Bloomberg) -- U.S. stocks rose, sending the Standard & Poor’s 500 Index higher for a fourth day, as a drop in borrowing costs at auctions in Europe overshadowed disappointing American jobless claims and retail sales data.

Alcoa Inc. and Caterpillar Inc. rallied at least 2.3 percent, pacing gains among the biggest companies. Target Corp. added 1.6 percent as the discount retailer said it will buy back as much as $5 billion of its shares. Energy companies slumped as oil sank and Chevron Corp. lost 2.6 percent after reporting fourth-quarter profit was “significantly below” the previous period. Bank of America Corp. dropped 1.2 percent.

The S&P 500 rose 0.2 percent to 1,295.50 at 4 p.m. New York time, erasing a decline of as much as 0.5 percent. The benchmark gauge for American equities gained 1.4 percent in four days to the highest since July 28. The Dow Jones Industrial Average added 21.57 points, or 0.2 percent, to 12,471.02 today.

“It’s a four-day rally, but a fairly miserable carry through,” Bruce McCain, who helps oversee more than $20 billion as chief investment strategist at the private-banking unit of KeyCorp in Cleveland, said in a telephone interview. “There’s improved optimism yet people still don’t want to take risk. We have become more sanguine about the problems in Europe and they still have a mess. That has the potential to take us by surprise and it’s not going to be a good surprise.”

The four-day rally in the S&P 500 extended this year’s advance to 3 percent. Commodity, financial and industrial companies had the biggest gains among 10 groups in 2012, adding at least 5.8 percent. Utility and telephone providers, which are least-tied to economic growth, were the worst performers.

Debt Auctions

American stocks joined a global rally as Spain sold 10 billion euros ($13 billion) of bonds, twice the target for the sale, while Italy sold 12 billion euros of bills, easing concerns the countries would struggle to finance their debts. European Central Bank President Mario Draghi said there are signs the economy is stabilizing. Equities fell earlier as sales at U.S. retailers rose less than projected in December and jobless claims increased more than forecast last week.

“There are significant cross currents,” Michael Mullaney, who helps manage $9.5 billion at Fiduciary Trust in Boston, said in a telephone interview. “Lower borrowing costs will help in the refinancing that’s due in the next few months in the euroland in general. Still, they’ve got to spur growth to get things going. In the U.S., today’s economic numbers were weaker than anticipated. The market has had a nice run here. Sentiment has gotten more bullish, which makes me nervous.”

Alcoa, Caterpillar

Within the biggest companies, Alcoa, the largest U.S. aluminum producer, climbed 3.1 percent to $9.93. Caterpillar, the world’s largest construction and mining-equipment maker, gained 2.3 percent to $101.94.

Target added 1.6 percent to $49.81. Repurchases under the new authorization will start after the current $10 billion program ends early this year. Target expects to complete the new $5 billion authorization in the next two to three years.

Dow Chemical Co. rallied 3.6 percent to $32.56. The European Union removed tariffs against the U.S. on a chemical used in paints and paper coatings after U.K. producer Ineos Oxide Ltd. withdrew a complaint about price undercutting. The policy reversal ends duties as high as 13.8 percent on U.S. exporters including Dow Chemical for allegedly having sold vinyl acetate in the EU below cost, a practice known as dumping.

CA Inc. rose 4.2 percent to $21.82. Hedge fund Taconic Capital Advisors LP said it acquired a 5.1 percent stake in the maker of software for mainframe computers and is in talks with management to boost returns.

Energy Shares

Energy companies in the S&P 500 slid 0.9 percent as a group. Oil dropped the most in two weeks after a proposed European Union embargo of Iranian oil imports was said likely to be delayed for six months.

Chevron sank 2.6 percent, the most in the Dow, to $104.97. The company’s U.S. refineries processed 18 percent less crude during October and November than during the final three months of 2010 because of maintenance work that idled part of a California refinery, Chevron said.

Banks swung between gains and losses ahead of JPMorgan Chase & Co.’s results tomorrow. The New York-based company is projected to report a record $18.5 billion in 2011 earnings when adjusted for one-time items, a 6 percent increase, according to a survey of analysts by Bloomberg. Profit at San Francisco-based Wells Fargo & Co. is estimated to have jumped more than four times as much, to an all-time high of $15.3 billion.

JPMorgan added 0.5 percent to $36.85. Wells Fargo lost less than 0.1 percent to $29.61. Bank of America slumped 1.2 percent to $6.79, after rallying 11 percent in three days.

Optimism Rises

The 12 percent rally in the S&P 500 since Nov. 25 has pushed optimism to a level last seen when the U.S. stock market began its biggest retreat since 2009.

The proportion of investment newsletter writers who are optimistic on equities rose to 51.1 percent this week, the highest since May, according to a report from New Rochelle, New York-based Investors Intelligence yesterday. Last year’s peak in bullishness was just before the market’s top in April.

Some analysts say sentiment serves as a contrary indicator given that optimistic investors have already purchased shares, leaving less money to help drive prices higher. The S&P 500 has climbed in four out of the past six weeks as data on manufacturing and employment raised optimism the world’s largest economy will weather Europe’s sovereign debt crisis.

“Sentiment is getting more extreme,” Arthur Huprich, an analyst with Raymond James & Associates Inc., wrote in a note yesterday. “Trading will remain choppy, especially as overhanging selling pressure looms.”

--With assistance from Lu Wang 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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