Bloomberg News

S&P 500 Rises on Greece as Home Data Signal Stability

May 29, 2012

U.S. stocks rose, after the first weekly gain since April in the Standard & Poor’s 500 Index, as Greek opinion polls eased concern the country will leave the euro and data signaled the American housing market stabilized.

All 10 industries in the S&P 500 advanced as commodity and technology companies had the biggest gains. Builders D.R. Horton Inc. and PulteGroup Inc. (PHM:US) increased at least 2 percent as data showed that home values in 20 U.S. cities declined at a slower pace. Caterpillar (CAT:US) Inc., Bank of America Corp. (BAC:US), Alcoa Inc. (AA:US) climbed more than 2.8 percent. Facebook Inc. (FB:US) tumbled 9.6 percent, extending losses from the worst-performing large initial public offering during the past decade to 24 percent.

The S&P 500 advanced 1.1 percent to 1,332.42 at 4 p.m. New York time. The gauge added 1.7 percent last week. The Dow Jones Industrial Average increased 125.86 points, or 1 percent, to 12,580.69 today. About 6.2 billion shares changed hands on U.S. exchanges, or 8.6 percent below the three-month average.

“We’re definitely seeing signs of stabilization on the housing front,” said Brad Sorensen, director of market and sector analysis at San Francisco-based Charles Schwab Corp. His firm has $1.83 trillion in client assets. “The economy is looking decent. There’s also a bit of relief that we won’t have any imminent kicking out or defaulting of Greece.”

American equities joined a global rally. Greece’s New Democracy, which supports the austerity plan negotiated with international lenders, placed first in all six polls published on May 26 as campaigning continued for June’s election. The U.S. market was closed yesterday for a holiday. Home values in 20 U.S. cities fell in the 12 months ended March at the slowest pace in more than a year.

Spain’s Downgrade

Benchmark gauges briefly pared gains as the euro weakened to the lowest level versus the dollar in almost two years on concern that Spain’s financial crisis is worsening. Egan-Jones Ratings Co. reduced its credit rating for Spain to B from Bb-. The 17-nation currency fell against most of its major counterparts as Spanish officials debated how to fund a recapitalization of the Bankia group.

Today’s rally trimmed this month’s slump in the S&P 500 to 4.7 percent. The benchmark gauge is heading for its biggest monthly retreat since September, amid concern global economic growth is slowing and Greece may leave the euro area.

The Morgan Stanley Cyclical Index of companies most-tied to the economy increased 2 percent. A gauge of homebuilders in S&P indexes added 1.9 percent. D.R. Horton gained 2.5 percent to $17.43. PulteGroup advanced 2 percent to $9.52. Caterpillar, the biggest maker of construction equipment, added 2.9 percent to $92.52. Bank of America added 4.1 percent to $7.44. Alcoa increased 3 percent to $8.89.

Coal Companies

Coal producers gained after Goldman Sachs Group Inc. raised its recommendation for the industry to attractive from neutral. Peabody Energy Corp. (BTU:US), the largest U.S. coal producer, jumped 5.6 percent to $25.22 as Goldman recommended buying the shares. Consol Energy Inc. added 1.8 percent to $30.13.

Facebook lost 9.6 percent to $28.84. The company’s options (FB:US) trading began today. Facebook debuted on May 18 after underwriters sold shares at $38.

“People are disillusioned,” said Matt McCormick, who helps oversee $6.2 billion at Bahl & Gaynor Inc. in Cincinnati. He doesn’t own shares of Facebook. “A lot of investors believed the hype,” he said. “In this type of volatile market environment, people are not going to take chances.”

Vertex Pharmaceuticals Inc. (VRTX:US) tumbled 11 percent, the most since 2008, to $57.80. The company revised results reported three weeks ago from a study of two cystic fibrosis drugs, saying the combination showed less of a benefit.

Western Digital

Western Digital Corp. (WDC:US) slumped 3 percent, the most in the S&P 500, to $33.17. The maker of disk drives was downgraded at Barclays Plc. The share price estimate (WDC:US) is $37. Seagate Technology Plc (STX:US), also cut at Barclays, dropped 4.4 percent to $25.03.

Stock buybacks are falling to a three-year low just as U.S. chief executive officers boost spending on plants and equipment to a record.

Companies announced $1.1 billion of repurchases a day on average during the earnings season in April and May, the lowest level since mid-2009, according to data compiled by Bloomberg and TrimTabs Investment Research Inc. Capital spending in the U.S. has risen since 2010 and reached $63.6 billion in March. Devon Energy Corp. (DVN:US) eliminated buybacks and boosted exploration and production spending 18 percent. United Parcel Service Inc. cut repurchases in order to buy TNT Express NV.

After the biggest first-quarter gain for the S&P 500 since 1998, bears say the 58 percent decline in buybacks removes key support for equities amid Europe’s debt crisis and a weakening U.S. recovery.

More Optimistic

While orders for capital equipment fell last month, bulls say the two-year gain in business investment shows CEOs are growing more optimistic, spending to raise profits instead of reducing stock to boost per-share earnings.

“Investors and corporations themselves are best served when the cash is applied to improving capital investment, as opposed to buying stock back,” Bruce Bittles, chief investment strategist at Milwaukee-based Robert W. Baird & Co., which oversees $85 billion, said in a May 22 phone interview. “That would be much more bullish.”

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


The Good Business Issue
LIMITED-TIME OFFER SUBSCRIBE NOW

Companies Mentioned

  • PHM
    (PulteGroup Inc)
    • $20.96 USD
    • 0.02
    • 0.1%
  • CAT
    (Caterpillar Inc)
    • $93.72 USD
    • 0.22
    • 0.23%
Market data is delayed at least 15 minutes.
 
blog comments powered by Disqus