Bloomberg News

S&P 500 Has Biggest Gain in Two Months on China Signals

May 21, 2012

Traders at the New York Stock Exchange. Photographer: Richard Drew/AP Photo

Traders at the New York Stock Exchange. Photographer: Richard Drew/AP Photo

U.S. stocks rose, giving the Standard & Poor’s 500 Index its biggest rally in more than two months, after China signaled it would support growth while German and French officials said they will work to keep Greece in the euro.

Commodity, technology and industrial shares gained the most among 10 S&P 500 groups. Apple Inc., Newmont Mining Corp. (NEM:US) and Boeing (BA:US) Co. added at least 3.8 percent. Cooper Industries Plc (CBE:US) surged 25 percent as Eaton Corp. (ETN:US) agreed to buy the company for $11.8 billion. Facebook Inc. tumbled 11 percent and closed below its offer price of $38 in its second trading day. JPMorgan (JPM:US) Chase & Co. and Bank of America Corp. (BAC:US) slumped more than 2.7 percent.

The S&P 500 added 1.6 percent to 1,315.99 at 4 p.m. New York time, halting a six-day drop. The Dow Jones Industrial Average rose 135.10 points, or 1.1 percent, to 12,504.48. The Nasdaq Composite Index gained 2.5 percent, the most this year, to 2,847.21. About 6.9 billion shares changed hands on U.S. exchanges or almost in line with the three-month average.

“We’re in need of some rally after the pullback,” said Eric Teal, chief investment officer at First Citizens Bancshares Inc., which manages $4.5 billion in Raleigh, North Carolina. “China’s comments were encouraging as it stands ready to provide stimulus. That’s important for the global economy.”

Stocks rebounded from a four-month low as Chinese Premier Wen Jiabao pledged to focus more on bolstering growth. Germany and France agree that they will do “everything necessary” to ensure Greece remains in Europe’s single currency, Finance Minister Wolfgang Schaeuble said after a meeting with French Finance Minister Pierre Moscovici.

$1 Trillion

More than $1 trillion was erased from U.S. market values this month on concern about Europe’s crisis. The decline took the S&P 500 down as much as 8.7 percent from an almost four-year high. At the end of last week, the S&P 500 traded at 13.1 times reported earnings, below the average since 1954 (SPX) of 16.4.

Today’s rebound in equities extended this year’s gain in the S&P 500 to 4.6 percent. The Morgan Stanley Cyclical Index of companies most-tied to the economy rose 2.5 percent. Apple, the most valuable company, added 5.8 percent to $561.28. Newmont Mining climbed 3.9 percent to $47.37. Boeing jumped 3.8 percent to $71.78 after Argus Research recommended buying the shares of the biggest aerospace company.

Cooper Industries jumped 25 percent, the most in almost 11 years, to $69.88. Each Cooper share will be exchanged for $39.15 in cash and 0.77479 Eaton share. That offer is valued at $72 a share based on Eaton’s May 18 closing price, 29 percent more than Cooper’s price that day.

Yahoo Gains

Yahoo! Inc. (YHOO:US) advanced 1 percent to $15.58. Alibaba Group Holding Ltd., China’s largest e-commerce provider, agreed to repurchase about a 20 percent stake in itself from the U.S. Web portal for about $7.1 billion.

Radian Group Inc. (RDN:US) led a rally of mortgage insurers after investor Clinton Group Inc. pushed for a sale of the company. Clinton “is aware of one former industry executive who has expressed serious interest in acquiring Radian at a price significantly above its current trading level,” the asset management firm said today in a statement.

The Philadelphia-based insurer jumped 18 percent to $2.39. MGIC Investment Corp. (MTG:US) climbed 6.3 percent to $2.36. Genworth Financial Inc. (GNW:US) advanced 4.5 percent to $5.10.

Facebook tumbled 11 percent to $34.03. It rose 0.6 percent in its first day of trading on May 18. The offering valued Facebook at 107 times (FB:US) trailing 12-month earnings, more than every S&P 500 member except Amazon.com Inc. and Equity Residential. Facebook is trying to attract more marketers to boost sales as competition increases. General Motors Co. last week announced plans to cut Facebook advertising.

‘Valuation Is Rich’

“Valuation is rich,” said Mark Luschini, chief investment strategist for Philadelphia-based Janney Montgomery Scott LLC, which manages $54 billion. “You have a company like GM saying they don’t see the utility in advertising on Facebook. That collection of things has influenced the lack of enthusiasm.”

Zynga Inc., which makes games played on Facebook, lost 1 percent to $7.09. The shares tumbled 13 percent on May 18. LinkedIn Corp. (LNKD:US), the professional-networking site, dropped 2.2 percent to $96.84.

Nasdaq OMX Group Inc. (NDAQ:US), under scrutiny after shares of Facebook were plagued by delays and mishandled orders on its first day of trading (FB:US), said it will no longer accept modifications to orders during the final stages of initial public offering auctions, according to a statement.

Nasdaq’s chief executive officer said yesterday that Facebook Inc. (FB:US)’s stock trading following its IPO was delayed May 18 because computer systems used to establish the opening price were overwhelmed by order cancellations and updates.

‘Highly Unattractive’

A gauge of diversified financial shares in the S&P 500 retreated. David Trone, an analyst at JMP Securities LLC, downgraded some banks including JPMorgan and Bank of America. He said risk/reward is “highly unattractive.” JPMorgan fell 2.9 percent to $32.51. Bank of America slumped 2.7 percent to $6.83.

JPMorgan suspended its daily stock repurchase program because the bank needs the money to meet international capital rules, not because of trading losses, Chief Executive Officer Jamie Dimon said. JPMorgan revealed a $2 billion trading loss on May 10. The firm may face even bigger losses on faulty bets in credit markets if Europe’s crisis worsens, according to one of the hedge funds that took the other side of the trades.

“They’re not out of those positions,” Michael Platt, co- founder and chief executive officer of BlueCrest Capital Management LLP, said today in an interview on Bloomberg Television’s “Inside Track.”

BlackRock, Lowe’s

BlackRock Inc. (BLK:US) retreated 2.4 percent to $167.73. Barclays Plc, the U.K.’s second-largest bank by assets, will sell its entire $6.1 billion stake (BLK:US) in BlackRock before the latest round of Basel rules stops it from counting the holding as capital.

Lowe’s Cos. (LOW:US) slumped 10 percent, the most since 2009, to $25.60. The second-largest U.S. home-improvement retailer reduced its forecast for full-year earnings to a range of $1.73 to $1.83 from $1.75 to $1.85 because of a smaller increase in profit margins than it had previously expected.

Campbell Soup Co. (CPB:US) fell 2 percent to $32.75 after posting a decline in third-quarter profit (CPB:US) as the company works to revive its struggling soup business.

Eastman Kodak Co. (EKDKQ:US) lost a ruling (EKDKQ:US) in a legal fight against Apple (AAPL:US) Inc. and Research In Motion Ltd. (RIM) over a patent for digital image-preview technology, a decision that may hurt the value of assets Kodak is selling. The shares, which have traded over the counter since the bankruptcy, plunged 27 percent to 20 cents.

Avon Products Inc. (AVP:US) retreated 1.1 percent to $16.77. The world’s largest door-to-door cosmetics seller (AVP:US) was downgraded to sell from neutral at UBS AG.

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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Companies Mentioned

  • NEM
    (Newmont Mining Corp)
    • $25.19 USD
    • -0.22
    • -0.87%
  • BA
    (Boeing Co/The)
    • $126.71 USD
    • -3.03
    • -2.39%
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