Bloomberg News

U.S. Stocks Advance Amid China Bets, Economic Reports

June 27, 2012

U.S. stocks rose, sending the Standard & Poor’s 500 Index higher for a second day, amid better-than-estimated housing and durable goods orders data while speculation grew that China will add to economic stimulus.

Energy and financial shares rose the most in the S&P 500 among 10 groups. A gauge of homebuilders in S&P indexes climbed 3 percent to the highest since 2008. Monsanto (MON:US) Co., the world’s biggest seed company, added 3.9 percent as earnings beat estimates. Facebook Inc. (FB:US) fell 2.6 percent as analysts including those at lead underwriter Morgan Stanley said the social-network operator is worth no more than its debut price of $38.

The S&P 500 rose 0.9 percent to 1,331.85 at 4 p.m. New York time. It has risen 1.6 percent so far in June. The Dow Jones Industrial Average added 92.34 points, or 0.7 percent, to 12,627.01. Volume for exchange-listed stocks in the U.S. was 5.8 billion shares, or 14 percent below the three-month average.

“The economic data was encouraging,” said Walter Todd, who oversees about $940 million as chief investment officer of Greenwood Capital in Greenwood, South Carolina. “It’s important to see that because most recently we’ve had weaker data here and in China while Europe came back to the forefront. Any policy moves out of China would certainly be welcomed.”

Equities rallied as orders for durable goods and the number of Americans signing contracts to buy an existing home rebounded in May, easing concern the world’s largest economy is faltering. The China Securities Journal said the country may introduce “more proactive” policies to ensure stable growth in the world’s second-largest economy. European leaders prepared for a two-day summit starting tomorrow.

Debt Concern

Concern about a worsening of Europe’s debt crisis and a global slowdown has taken the S&P 500 down 5.4 percent this quarter. Energy and financial shares have had the biggest losses in the period, tumbling at least 9.5 percent.

Both groups jumped more than 1.2 percent for the largest increases in the S&P 500 today, with energy companies accounting for eight of the gauge’s nine biggest gains. Exxon Mobil Corp. (XOM:US) added 1 percent to $83.20. JPMorgan Chase & Co. climbed 3 percent, the most in the Dow, to $36.78, while Bank of America Corp. (BAC:US) had the second-biggest increase, rising 2 percent to $7.77.

Monsanto, the largest seed company, added 3.9 percent to $80.89. Sales of corn seed and genetic licenses rose 35 percent as U.S. farmers planted the biggest crop in 75 years. Soybean sales gained 15 percent, driven by demand for the newest seed engineered to tolerate Monsanto’s Roundup herbicide. Chairman and Chief Executive Officer Hugh Grant also is expanding in Latin America and Eastern Europe.

Share Buyback

Bristol-Myers Squibb Co. (BMY:US) gained 1.7 percent to $35.09 after the drugmaker doubled the size of its share buyback program, authorizing $3 billion in additional repurchases to be made over the “next couple years.”

Lennar Corp. (LEN:US) rose 4.8 percent to $28.70. The homebuilder gained after a tax benefit and improving demand fueled a surge in its fiscal second-quarter profit.

Facebook slid 2.6 percent to $32.23. At least 17 securities firms began coverage of the company today, bringing the average analyst share-price estimate to $37.95, data compiled by Bloomberg show. Morgan Stanley gave Facebook the equivalent of a buy rating, as did JPMorgan Chase & Co. (JPM:US), Goldman Sachs Group Inc. and five other firms. There were eight holds and one sell, the data (FB:US) show.

Facebook, its bankers and listing exchange Nasdaq OMX Group Inc. faced criticism after the shares fell below the initial public offering price of $38 on the second day of trading and extended losses to 32 percent on June 5. Underwriters sold stock at a higher valuation than every S&P 500 company except two.

‘Maximum Pricing’

“Investors probably have a right to be a little bit upset,” John Kattar, chief investment officer at Eastern Bank Wealth Management in Boston, which manages $1.7 billion, said in a telephone interview. His firm doesn’t own Facebook stock. “The underwriters got a lot of pressure from the company to price it as high as possible. They were getting a lot of pressure from Facebook to try to extract the maximum pricing.”

DreamWorks Animation SKG Inc. (DWA:US) surged 5 percent to $18.29. The computer-animation studio rose after an analyst said the company’s latest film, “Madagascar 3: Europe’s Most Wanted,” was exceeding expectations.

O’Reilly Automotive Inc. (ORLY:US) tumbled 14 percent to $82.61. The retailer of auto parts, tools and accessories sank the most in more than a decade after saying sales growth was slower than expected and second-quarter profit will be on the lower end of the company’s forecast range.

Rival AutoZone Inc. (AZO:US) sank 4.7 percent to $359.

Economic Data

Economic reports are due to take a turn for the better that will lift U.S. stocks, according to Binky Chadha, chief global strategist at Deutsche Bank AG.

Investors are suffering from “data disappointment” that has become extreme by historical standards, Chadha wrote in a report two days ago. “The typical pattern from here would be for fewer negative surprises and then positive ones.”

Changes in jobless claims explain 88 percent of the S&P 500’s performance during the period, according to statistical analysis cited in the report. The figure is near a 100 percent limit when two values move in lockstep.

As the relationship suggests, economic data “have been the key driver of equities,” Chadha wrote. They largely explain why stocks have retreated in the past few weeks, the New York-based strategist added. The S&P 500 has fallen as much as 9.9 percent from this year’s high, set on April 2.

Europe’s sovereign-debt crisis and slowing growth in emerging markets have contributed to the decline, the report said. Any stock-market rebound triggered by policy changes on these issues won’t last unless the economic data turn around, he wrote.

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net


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Companies Mentioned

  • MON
    (Monsanto Co)
    • $119.18 USD
    • 0.22
    • 0.18%
  • FB
    (Facebook Inc)
    • $69.11 USD
    • -0.29
    • -0.43%
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