Bloomberg News

U.S. Stocks Rise on Bank Rally as Jobless Claims Decline

March 01, 2012

U.S. stocks advanced, sending the Standard & Poor’s 500 Index to the highest level since 2008, amid a rally in financial shares and after government data showed that jobless claims declined to a four-year low.

JPMorgan Chase & Co. (JPM) and Bank of America Corp. (BAC) climbed at least 1.8 percent as Spanish and French borrowing costs fell. ConocoPhillips (COP) added 2.2 percent, pacing gains in energy producers, as crude oil traded near $110 a barrel. Gap Inc. (GPS), the largest U.S. apparel chain, increased 7.2 percent as same-store sales exceeded estimates. General Motors Co. (GM) jumped 1.7 percent after the automaker reported a surprise U.S. sales gain.

The S&P 500 added 0.6 percent to 1,374.09 at 4 p.m. New York time, after a three-month gain. The Dow Jones Industrial Average rose 28.23 points, or 0.2 percent, to 12,980.30.

“We’re not lighting the world on fire, but we’re seeing improvement in the economy,” said Mark Masterson, managing director and partner at HighTower’s Masterson, Emma & Associates in Naples, Florida. Hightower has over $25 billion in assets. “The risk from the European situation has been reduced. I don’t know that it’s been eliminated. Best I can say at this point is that it appears to have been postponed.”

Equities rose as the number of Americans filing first-time claims for jobless benefits fell to a level matching a four-year low, more evidence the labor market is healing. Gains in Europe also helped lift the S&P 500 after Spain and France sold 12.5 billion euros ($16.7 billion) of bonds as the European Central Bank’s long-term refinancing operation of lending to banks helped spur demand.

Banks Rally

Financial shares had the biggest gain in the S&P 500 among 10 industries, adding 1.2 percent. JPMorgan increased 2.9 percent, the most in the Dow, to $40.37. Bank of America had the second-largest advance in the 30-stock gauge, climbing 1.9 percent to $8.12.

Goldman Sachs Group Inc. (GS) jumped 5.2 percent to $121.13. The fifth-biggest U.S. bank by assets agreed to buy Ariel Holdings Ltd.’s Bermuda-based insurance and reinsurance businesses to expand property and casualty coverage.

Benchmark gauges briefly pared gains as oil jumped after a report of an explosion on a pipeline in Saudi Arabia. A government official said late today there was no sabotage to its oil facilities in the Qatif region. Energy shares in the S&P 500 added 0.9 percent as a group. ConocoPhillips gained 2.2 percent to $78.22.

‘Two Steps Forward’

“U.S. stocks and economic data appear to be moving at least two steps forward for every step back which, we believe, leads to a strengthening trend for both,” said Kully Samra, who manages U.K.-based clients for Charles Schwab Corp., which has $1.6 trillion of assets globally. “Rising oil prices are a risk to global growth, but we’re optimistic the improved environment will keep the recovery in motion.”

Gap surged 7.2 percent, the most in the S&P 500, to $25.05. Sales climbed 4 percent, beating the average projection for a 1.4 percent drop from analysts surveyed by Retail Metrics Inc. Unseasonably warm weather boosted purchases of spring merchandise.

Car companies had the biggest gain in the S&P 500 among 24 industries, rallying 2.1 percent. GM added 1.7 percent to $26.47 as deliveries rose 1.1 percent in February to 209,306 cars and light trucks, beating analysts’ estimates for a 4.8 percent drop. Ford Motor Co. (F) climbed 2.3 percent to $12.66 after sales also topped analysts’ estimates.

Adding Technology

Advanced Micro Devices Inc. (AMD) climbed 2.2 percent to $7.51. The second-largest maker of processors for personal computers said it will pay $334 million to buy SeaMicro Inc., a chip designer with expertise in servers, adding technology that can help it compete with Intel Corp. in the market for data centers.

Monster Worldwide Inc. (MWW) surged 15 percent to $8.01. The world’s largest online-recruiting company said it’s considering “all other strategic alternatives” to boost shareholder value.

Apple Inc. (AAPL) rose 0.4 percent to a record $544.47, gaining for a sixth day. Now that its market value has exceeded $500 billion, the biggest challenge for the maker of iPads may be staying there. It’s the sixth U.S. company crossing the threshold, data compiled by S&P show. The others are Microsoft Corp. (MSFT), General Electric Co., Cisco Systems Inc., Intel Corp. and Exxon Mobil Corp., in chronological order.

All five companies were below $500 billion a year after reaching that pinnacle, according to data compiled by Bloomberg. GE was the only one to surpass that value afterward.

Extending a Rally

Today’s advance extended this year’s rally in the S&P 500 to 9.3 percent. Yet the index trades at about 14.2 times reported earnings, compared with the average since 1954 (SPX) of 16.4 times, according to data compiled by Bloomberg.

The S&P 500 has the potential to reach 1,700 before the end of the year should the economy surprise investors the same way falling bond rates did in 1995, Birinyi Associates Inc. said.

An expansion that beat forecasts would help stocks rally after economists tempered their estimate for growth in 2012 to 2.2 percent from 2.3 percent earlier in the year, according to Laszlo Birinyi, who was among the first to suggest buying stocks in 2009. The potential for surprise is similar to 1995, when the yield on the 30-year U.S. Treasuries (USGG30YR) fell 1.93 percentage points, even as Wall Street predicted they would gain.

“In 1995, the consensus trade was higher yields, today it is tepid economic growth and the market is suggesting -- perhaps insisting -- an alternative to that consensus,” Birinyi wrote. “We would encourage a more aggressive posture.”

‘Dramatic Improvement’

UBS AG raised its forecasts for the S&P 500 and its companies earnings amid a “dramatic” improvement in the economy. Jonathan Golub’s year-end forecast for the benchmark gauge rose to 1,475 from 1,325. He estimates earnings-per-share of $103 this year and $112 in 2013. The previous forecasts were $99 and $111, respectively.

A measure of homebuilders in S&P indexes lost 0.9 percent. PulteGroup Inc. slumped 2.6 percent to $8.59. KB Home (KBH) fell 1.3 percent to $11.27.

Sotheby’s (BID) tumbled 9.1 percent to $35.75. The publicly traded auctioneer of fine arts and collectibles said fourth- quarter profit fell 26 percent as sales slid.

Smaller companies trailed larger stocks in the U.S. in February, a sign that the S&P 500’s longest monthly rally in a year may be losing momentum, according to Bespoke Investment Group LLC.

The Russell 2000 Index (RTY), which tracks companies with an average market value of $738 million, added 2.3 percent last month, compared with a 4.1 percent gain in the S&P 500, whose members average $25.9 billion in value. The underperformance accelerated in the second half of the month, with the Russell 2000 rising on two of the last nine days and the S&P 500 gaining during seven.

“Small caps are cyclical in nature, and typically perform better during market rallies,” Justin Walters, Bespoke’s co- founder, wrote in a note yesterday. “They haven’t been rallying recently, which should be cause of concern for market bulls.”

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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