Bloomberg News

U.S. Stocks Rise to End S&P 500’s 3-Week Losing Streak

May 26, 2012

U.S. stocks rose, giving the Standard & Poor’s 500 Index its first weekly rally since April, as investors were lured by the cheapest valuations since November.

The benchmark index fell on the last day of the week on concern about Spain’s finances. All 10 industries in the S&P 500 advanced for the week, as commodity producers and consumer stocks rose at least 2.9 percent. An index of homebuilders rallied 8.6 percent amid better-than-expected housing data. The Dow Jones Transportation Average (TRAN) climbed 4.2 percent, the most since December, as JPMorgan Chase & Co. raised estimates for airlines. Dell Inc. (DELL:US) lost the most since September 2001. Facebook Inc. (FB:US) sank 17 percent, trading below its initial offer price.

The S&P 500 climbed 1.7 percent to 1,317.82, extending its 2012 gain to 4.8 percent. The Dow Jones Industrial Average added 85.45 points, or 0.7 percent, to 12,454.83, rebounding from the lowest level since January.

“It’s just a reflex bounce,” Wayne Wilbanks, chief investment officer at Wilbanks, Smith & Thomas Asset Management LLC in Norfolk, Virginia, which oversees about $2 billion, said in a phone interview. “Global fundamentals have gotten worse, from the situation in Europe to the slowdown in China. The only bright spot continues to be in the United States.”

Equities rallied after a three-week, 7.7 percent decline pushed the S&P 500’s price-to-earnings ratio to 13.1 on May 18, below the average of 16.4 since 1954, according to data compiled by Bloomberg. The benchmark gauge is down 5.7 percent in May, heading for its biggest monthly retreat since September, amid concern global economic growth is slowing and Greece may leave the euro area.

China’s Growth

The S&P 500 staged its biggest rally in more than two months on May 21 after China signaled it would support growth. The benchmark index swung between gains and losses over the next four days, as concern over Europe’s debt crisis alternated with optimism that the region’s leaders would work to keep Greece in the euro. In the U.S., economic reports sent out mixed signals, with consumer confidence and home sales rising while company orders for capital equipment declined.

The S&P 500 Materials Index climbed 3.9 percent in the week, the most since January. Dow Chemical Co. (DOW:US), the largest U.S. chemical maker by sales, gained 6.3 percent to $31.30 after saying an arbitration panel ruled Kuwait must pay $2.16 billion in damages because it canceled a 2008 agreement to buy a stake in the company’s plastics business.

An S&P gauge of homebuilders surged 8.6 percent, the most in one month, as demand for new U.S. homes rose more than forecast, indicating residential real estate may contribute to economic growth for the first time in seven years.

Toll Brothers, PulteGroup

Toll Brothers Inc. (TOL:US) rose 10 percent to $28.20. The largest U.S. luxury-home builder reported a second-quarter profit that beat estimates as orders jumped in an improving housing market.

PulteGroup Inc. (PHM:US), the biggest U.S. builder by revenue, climbed 9.9 percent to $9.33. Home Depot Inc. (HD:US), the largest U.S. home-improvement retailer, rose 5.1 percent, the most in the Dow industrial, to $49.44.

Southwest Airlines Co. (LUV:US) jumped 7.5 percent to $8.76. United Continental Holdings Inc. (UAL:US) rallied 13 percent to $23.57. Jamie Baker, an analyst with JPMorgan, raised the earnings estimates for the airline industry as jet-fuel prices remained near a five-month low.

Among companies announcing earnings, Urban Outfitters Inc. (URBN:US) rallied 11 percent to $28.42 after the retailer reported first- quarter profit that beat analysts’ estimates on record sales.

Hewlett-Packard Co. (HPQ:US) added 4.1 percent to $22.33. The world’s largest personal-computer maker posted quarterly sales and profit that topped estimates and said it plans to slice its workforce by 27,000, buoying optimism for a turnaround.

Dell Tumbles

Dell tumbled 15 percent to $12.46. The third-largest maker of personal computers forecast fiscal second-quarter revenue that missed analysts’ estimates. The estimate, paired with a first-quarter sales and earnings miss, pointed to problems endemic to Dell, Steve Felice, Dell’s president, said in a conference call. The sales team focused on individual products instead of packages of hardware and software, he said.

NetApp Inc. (NTAP:US) sank 13 percent to $28.61. The seller of hardware and software for storing data projected first-quarter earnings excluding certain items of 39 cents a share at most, citing increasing uncertainty in the global economic outlook. Analysts had forecast 59 cents a share, on average, according to data compiled by Bloomberg.

Facebook Slump

Facebook, the social media company that set a record initial public offering for technology companies by raising more than $16 billion last week, plunged 17 percent to $31.91. The shares slipped below the $38 offer price on the second day of trading on May 21.

Federal securities regulators and the U.S. Senate’s banking committee have said they will or may review the Facebook offering. Buyers of the stock have sued Facebook, the sale’s underwriters and Nasdaq OMX Group Inc., the exchange handling the listing. Trading of Facebook was delayed on the debut day as Nasdaq was overwhelmed by order cancellations and trade confirmations.

Facebook’s IPO has the distinction of producing the worst return among the 10 largest U.S. deals of the past decade. Its 13 percent decline during the first five days of trading exceeded the 10 percent drop by MF Global Holdings Inc., according to data compiled by Bloomberg.

Zynga Inc. (ZNGA:US), which makes games played on Facebook, lost 7.7 percent to $6.61 during the week.

Cooper Industries Plc (CBE:US) surged 28 percent to $71.28. The maker of products from LED lighting to industrial circuit breakers agreed to be bought by Eaton Corp. for $11.8 billion in cash and stock.

To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

May 25 (Bloomberg) -- Bloomberg's Ellen Braitman reports on the performance of the U.S. equity market. U.S. stocks fell, trimming the first weekly gain in the Standard Poor’s 500 Index since April, as concern about Spain’s finances tempered optimism with data showing American consumer confidence rose to a four-year high. (Source: Bloomberg)

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