Dow Average Rallies to Highest Level Since May 2008 on Economy
February 23, 2012, 9:59 PM ESTBy Rita Nazareth
Feb. 23 (Bloomberg) -- U.S. stocks advanced, sending the Dow Jones Industrial Average toward the highest level since 2008, as jobless claims and housing data beat projections.
International Business Machines Corp., which comprises 12 percent of the share-price weighted Dow, added 30 points to the index. Procter & Gamble Co. rose 2.9 percent as the largest consumer-products company said it will cut 5,700 jobs. PulteGroup Inc. and KB Home advanced at least 4.2 percent to pace gains in homebuilders. Sears Holdings Corp. soared 20 percent as it plans to raise as much as $770 million by selling 11 store sites and separating some smaller-format businesses.
The Standard & Poor’s 500 Index increased 0.4 percent to 1,363.05 at 3:34 p.m. in New York, after falling 0.4 percent. The Dow gained 48.14 points, or 0.4 percent, to 12,986.81, the highest on a closing basis since May 2008. The Russell 2000 Index of small companies rallied 1.4 percent to 827.73.
“The recovery is starting to pick up speed,” Tom Wirth, who helps manage $1.5 billion as senior investment officer for Chemung Canal Trust Co., in Elmira, New York, said in a phone interview. “There was so much fear about what was happening in Europe that people couldn’t see through all of that.”
Stocks gained as applications for jobless benefits were unchanged in the week ended Feb. 18 at 351,000, the fewest since March 2008. A report from the Federal Housing Finance Agency showed that a gauge of home prices jumped 0.7 percent in December, beating estimates. The euro rose to the strongest level in more than 10 weeks against the dollar as a report showed German business confidence climbed.
Failed to Hold
Today’s gain sent the S&P 500 briefly above its April 2011 peak of 1,363.61, which was the highest level since June 2008. The index was poised for a third straight month of gains, the longest streak in a year, on higher-than-estimated economic data. The S&P 500 has risen 3.9 percent in February.
“Sometimes when you’re knocking on the door of a meaningful psychological level you have to knock hard a few times to gain admittance,” David Sowerby, a Bloomfield Hills, Michigan-based portfolio manager at Loomis Sayles & Co., which oversees more than $155 billion, said in a phone interview. “Valuation is compelling. There’s been improvement in the economy. That provides potential for stocks to move higher.”
The Dow Jones Transportation Average advanced 0.6 percent, following a three-day slump. Gauges of household products and diversified financial shares had the biggest gains in the S&P 500 among 24 industries, adding at least 1 percent. IBM jumped 2.1 percent, the second-biggest gain in the Dow, to $197.99.
Cost Savings
Procter & Gamble rallied the most in the Dow, rising 2.9 percent to $66.31. The cuts include 1,600 announced in January and will be achieved through attrition and layoffs, Paul Fox, a spokesman, said in an e-mail. The reductions are part of a plan to achieve $10 billion in cost savings by 2016, as detailed today by Chief Executive Officer Bob McDonald and Chief Financial Officer Jon Moeller at a conference in Florida.
A gauge of homebuilders in S&P indexes rallied 2.2 percent. KB Home added 4.2 percent to $11.73. PulteGroup advanced 4.4 percent to $8.70.
Sears surged 20 percent to $62.31. The rights offering to separate the Hometown and Outlet shops and some hardware stores may raise $400 million to $500 million, Hoffman Estates, Illinois-based Sears said today in a statement. The 11 sites will be sold to General Growth Properties for about $270 million, the retailer said.
Vivus Inc. soared 82 percent to $19.16 after the company’s pill Qnexa won the backing of a regulatory panel, moving the drug a step closer to gaining U.S. approval as the first new obesity treatment in 13 years.
Target’s Results
Target Corp. jumped 3 percent to $54.58. The second-largest U.S. discount retailer posted fourth-quarter earnings that exceeded some analysts’ estimates, helped by discount card initiatives and grocery sales.
MetroPCS Communications Inc. rallied 15 percent to $11.83. The pay-as-you-go U.S. wireless carrier reported fourth-quarter profit that beat analysts’ estimates.
Apple Inc. rose 0.8 percent to $516.92. Chief Executive Officer Tim Cook, speaking today at an annual investor meeting, said Apple was continuing “active discussions” about what to do with its $97.6 billion in cash and investments, saying the cash hoard was “more than we need to run a company.”
The company, bowing to pressure from the California Public Employees’ Retirement System and other shareholders, agreed to start electing its directors by majority votes rather than a plurality.
HP Tumbles
Hewlett-Packard Co. dropped the most in the Dow, slumping 6.3 percent to $27.12. The U.S. computer manufacturer’s fiscal second-quarter profit forecast fell short of analysts’ estimates as consumers curtailed personal-computer purchases.
Solar shares fell after Germany, the world’s biggest market for solar power, plans record reductions in subsidies for the industry as part of a program to rein in a boom in installations. First Solar Inc. declined 9 percent to $36.83. Trina Solar Ltd. tumbled 12 percent to $8.59.
Safeway Inc. declined 8.5 percent to $20.75. The grocer’s fourth-quarter sales excluding fuel at stores open at least one year increased 1.5 percent, trailing the average 2 percent gain expected by analysts.
Profits in the S&P 500 are rising faster than its price, leaving the gauge 9 percent cheaper than it was in April even after equities climbed within 6 points of last year’s peak.
The S&P 500 fell yesterday, trimming a rally since October that has added more than $3.2 trillion to share values, according to data compiled by Bloomberg. While the index is 0.4 percent below the 2011 high of 1,363.61, expanding earnings have pushed the price-earnings ratio to 14 from 15.4 in April.
Record Deposits
Economic growth that has been slower than any post- recession period since at least the 1940s is keeping investors from paying more for earnings even after stocks doubled in three years. The best January for the S&P 500 in 15 years has coincided with a decline in New York Stock Exchange trading volume to the lowest level since 1999 and record deposits with investment-grade bond funds.
“The world is profoundly underinvested in U.S. equities,” Jeffrey Saut, chief investment strategist at Raymond James & Associates in St. Petersburg, Florida, said in a phone interview on Feb. 21. His firm manages $300 billion. “The public is bombarded with all these negatives. Greece this, Portugal that, dysfunctional governments. The retail investor is frozen.”
--Editors: Jeff Sutherland, Nick Baker
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
