The Standard & Poor’s 500 Index (SPX) rose to an almost four-year high, rebounding from earlier losses, on better-than-estimated housing data as financial shares rallied.
A measure of banks advanced the most in the S&P 500 among 24 industries, rallying 1.9 percent. JPMorgan Chase & Co. (JPM) climbed 2 percent after CLSA Ltd. analyst Mike Mayo said it should consider breaking up and selling businesses. Lennar Corp. (LEN) and D.R. Horton Inc. (DHI) rallied more than 1.8 percent to pace gains in homebuilders. Micron (MU) Technology Inc., the largest U.S. maker of computer-memory chips, surged 7.7 percent after Japan-based rival Elpida Memory Inc. filed for bankruptcy.
The S&P 500 gained 0.1 percent to 1,367.59 at 4 p.m. New York time, erasing a drop of 0.8 percent. The Dow Jones Industrial Average lost 1.44 points, or less than 0.1 percent, to 12,981.51. The gauge turned lower at the close of trading after failing to hold above 13,000 (INDU) for the third session in the past week. The Dow last closed above that level in May 2008.
“The market has been very discomforting for the bears,” Michael Holland, chairman and founder of New York-based Holland & Co., said in a telephone interview. His firm oversees more than $4 billion. “The economy is healing. That’s causing the market to have some resilience.”
The S&P 500 is on pace for a third month of gains, the longest streak in a year, amid better-than-estimated economic and corporate reports. It has risen 4.2 percent this month. The index trades at about 14.1 times reported earnings, compared with the average since 1954 of 16.4 times, according to data compiled by Bloomberg.
Stocks rose today as more Americans than forecast signed contracts to buy previously owned homes in January, indicating the industry that sparked the last recession is improving. Benchmark gauges rebounded from earlier losses, which were triggered by concern about Europe’s debt crisis after the Group of 20 nations rebuffed euro area call for help.
“We’re nowhere near the bottom of the European debt crisis,” Keith Wirtz, who oversees $14.6 billion as chief investment officer for Fifth Third Asset Management in Cincinnati, said in a telephone interview. “I keep hoping that the European influence will ebb. The problem is still there. We’ll need to get used to volatility.”
Six out of 10 groups in the S&P 500 rose today as financial, consumer discretionary and technology companies had the biggest gains. The Morgan Stanley (MS) Cyclical Index of companies most-dependent on the economy added 0.6 percent.
The KBW Bank Index (BKX) rallied 1.3 percent as 22 of its 24 stocks advanced.
JPMorgan Chase jumped 2 percent, the most in the Dow, to $39.06. Its parts are worth one-third more than its market value, according to CLSA’s Mayo. While JPMorgan’s stock has outperformed its peers, the New York-based company has trailed the leading firms in its individual businesses, Mayo wrote in a note e-mailed today.
“At what point does the conglomerate discount become so great that it encourages the company to take action?” Mayo wrote. “The stock seems undervalued, but the question is how and when this value gets realized?”
Bank of America Corp. (BAC) climbed 2 percent to $8.04. The lender and a group of investors that reached an $8.5 billion mortgage-bond settlement with the bank won their bid to remove the case from a federal judge and return it to state court. The U.S. Court of Appeals in Manhattan overturned a lower court ruling and granted a request by Bank of America and the investor group to remand the case to New York state court, where it was first filed, according to a decision today.
A measure of homebuilders in S&P indexes rallied 1.5 percent. Lennar added 2.5 percent to $22.94. D.R. Horton gained 1.9 percent to $14.24.
Lowe’s Cos. rose 0.7 percent to $27.34. The second-largest U.S. home-improvement retailer reported fourth-quarter profit that exceeded analysts’ estimates after warmer weather encouraged outdoor projects.
Whirlpool Corp. (WHR) advanced 6.7 percent to $76.10. The world’s largest appliance maker will beat analysts’ estimates for 2012 earnings as profit recovers, Cleveland Research said in a note after meeting with the management.
Micron surged 7.7 percent to $8.56. Elpida, the last Japanese maker of dynamic random access memory, or DRAM, chips filed for bankruptcy after semiconductor prices plunged and it failed to win a second government bailout. While there’s too much capacity in the DRAM market, Micron could acquire some of Elpida’s facilities and convert them to produce Nand flash, the chips used in mobile phones and tablets, Kevin Cassidy, a Stifel Nicolaus & Co. analyst, said.
Walt Disney Co. (DIS) added 0.8 percent to $41.64. The largest U.S. entertainment company by market value was raised to “conviction buy” from “neutral” at Goldman Sachs Group Inc., which expects accelerating ad growth at ESPN.
Dendreon Corp. (DNDN) tumbled 21 percent, the most since Nov. 3, to $11.81. The maker of the prostate-cancer drug Provenge reported earnings that missed analyst estimates.
A gauge of U.S. equity volatility is likely to be “contained” below its historical average for the next four months, according to MKM Partners LLC, reducing the potential yields that structured product issuers can offer.
The VIX, as the Chicago Board Options Exchange Volatility Index (VIX) is known, will generally hold between 15 to 20 until mid- June, said Jim Strugger, a derivatives strategist for MKM in Stamford, Connecticut. The VIX measures the cost of using options as protection from losses in the S&P 500.
“We believe the volatility cycle is close to shifting into its sweet spot that will last a couple of months and be characterized by a steady move higher for U.S. equities,” Strugger said in a note today to clients. He based his estimate of the “sweet spot,” which represents a cyclical low in the level of volatility, on historical data from periods that had comparable price swings.
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