Bloomberg News

S&P 500 Rallies to Two-Month High After Factory Orders

July 03, 2012

U.S. stocks advanced, sending the Standard & Poor’s 500 Index to a two-month high, after data showed factory orders topped estimates and as speculation grew that global central banks will act to spur economic growth.

Commodity (S5MATR), industrial and technology shares had the biggest gains among 10 groups in the S&P 500. Alcoa (AA:US) Inc., Caterpillar Inc. (CAT:US) and Apple Inc. (AAPL:US) advanced at least 1.1 percent. Ford Motor Co. (F:US) rallied 2.2 percent as deliveries of cars and light trucks beat analysts’ estimates. Facebook Inc. (FB:US) climbed 1.4 percent as General Motors (GM:US) Co. is said to be talking with the largest social-networking company about resuming advertising.

The S&P 500 rose 0.6 percent to 1,374.02 at 1 p.m. New York time. The Dow Jones Industrial Average added 72.43 points, or 0.6 percent, to 12,943.82. The Russell 2000 Index rallied 1.3 percent to 818.48. The market closed at 1 p.m. today, and will be shut tomorrow for a holiday. Trading in S&P 500 companies was almost in line with the 30-day average at this time of day.

“The factory orders report was a good surprise,” Richard Sichel, who oversees $1.6 billion as chief investment officer at Philadelphia Trust Co., said in a telephone interview. “Investors are also finding comfort in central bank action. The Fed has anticipated that they will do whatever it takes to not let the economy slip, China is doing the same and that the Europeans seem to be doing that too.”

Equities climbed as factory orders rose in May for the first time in three months. Yet declining jobs data in the U.S. this week may prompt the Federal Reserve to initiate fresh stimulus, BNP Paribas SA said. The European Central Bank is forecast to cut interest rates this week to help curb the debt crisis, while a state-owned newspaper in China said the time is ripe for a reduction in banks’ reserve-requirement ratios.

‘Tepid’ Recovery

The U.S. economy will grow by 2 percent this year and about 2.25 percent in 2013 amid a “tepid” recovery and the European debt crisis, the International Monetary Fund said, lowering its previous projections. In an April report, the IMF forecast U.S. growth of 2.1 percent this year and 2.4 percent in 2013.

“Further easing” by the Federal Reserve might be needed “if the situation was to deteriorate,” IMF Managing Director Christine Lagarde said at a press conference in Washington today. She said she welcomed previous actions by the Fed to help the U.S. economy.

Concern about a global economic slowdown put the S&P 500 last month on the brink of a so-called correction, or a 10 percent decline from a recent peak. The index slumped 3.3 percent in the second-quarter, the biggest retreat since the period ending in September.

Alcoa, Apple

The Morgan Stanley Cyclical Index of companies most-tied to the economy rose 1.3 percent. Alcoa, the largest U.S. aluminum producer, added 3.2 percent to $8.90. Caterpillar, the biggest maker of construction equipment, advanced 3.3 percent to $86.46. Apple, the biggest company by market value, gained 1.2 percent to $599.41.

Car companies in the S&P 500 (SPX) added 2.1 percent for the second-biggest gain among 24 groups. General Motors, Ford and Chrysler Group LLC said U.S. auto sales exceeded estimates in June. Ford rallied 2.2 percent to $9.60. GM added 5.6 percent to $20.67.

Facebook climbed 1.4 percent to $31.20. The talks were reported by two people familiar with the matter. GM said it would stop advertising on Facebook on the eve of the company’s initial public offering in May.

MModal Inc. (MODL:US) surged 8.4 percent to $14.02. The largest provider of medical transcription services said it agreed to be bought by a JPMorgan Chase & Co. unit for about $1.1 billion.

Navistar International Corp. (NAV:US) rose 7.2 percent to $29.04 after the truckmaker scheduled an operations update for investors this week that may include plans to drop one type of pollution-control technology.

‘Softer’ Sales

The nation’s largest home-improvement retailers declined after Cleveland Research cited “softer” second-quarter sales. Lowe’s Cos. (LOW:US) retreated 3.5 percent to $27.62. Home Depot Inc. (HD:US) dropped 2.6 percent to $51.65.

Duke Energy Corp. (DUK:US) lost 1.7 percent to $68.69 after unexpectedly announcing the resignation of Bill Johnson, previously named to be the chief executive officer after its takeover of Progress Energy Inc. (PGN:US) James Rogers, the head of Duke, is CEO of the merged companies effective immediately.

Johnson, 58, is resigning “by mutual agreement,” the company said. The takeover, announced in January 2011, received its final regulatory approval yesterday. Tom Williams, a spokesman for Duke, declined to comment on the reason for the change. Johnson has been the chairman and CEO of Raleigh, North Carolina-based Progress since 2007.

Bearish Sentiment

Bearish sentiment in an individual investors’ survey has surpassed the historical average for the longest stretch since October, when stocks began a rally that lifted the S&P 500 24 percent.

A poll by the American Association of Individual Investors showed 44.4 percent of respondents say U.S. stocks will fall over the next six months. That’s the eighth week that pessimism stayed above the 25-year average of 30 percent.

Concern Europe’s debt crisis will deepen and the recovery weaken have erased as much as $1.8 trillion from U.S. equities since March. The last time the proportion of bears topped the average for this long was in the 14 weeks through Oct. 20, 2011, just after the S&P 500 bottomed at 1,099.23. The benchmark measure for U.S. stocks went on to surge as much as 29 percent, reaching a four-year high of 1,419.04 on April 2.

“Individual investors tend to get in when the markets are red hot and they tend to get out when the markets are at the bottom,” said Robert Carey, who helps oversee $53 billion as chief investment officer of Wheaton, Illinois-based First Trust Portfolios.

Enough Speed

Gains that drove the S&P 500 to its biggest June advance since 1999 may falter because too few stocks are rising with enough speed, StockCharts.com Inc. said.

The gauge surged 2.5 percent on June 29, finishing the month up 4 percent, amid optimism that Europe will prevent bank losses from multiplying. While the rally drove 64 percent of shares above their average price during the past 50 days, that’s short of the 85 percent threshold that usually accompany longer rallies, said Arthur Hill, a technical analyst at the firm.

While 85 percent is where momentum becomes self-sustaining, equity declines are likely to speed up when the number of stocks above the 50-day mean slips below 15 percent, Hill said.

“A surge above 85 percent shows strong-enough buying pressure to suggest that an uptrend is emerging,” Hill wrote in a note yesterday. “It is like a rocket lifting off the launch pad. A strong up-thrust is needed to insure a sustainable advance.”

To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net; Julia Leite in New York at jleite3@bloomberg.net

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


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Companies Mentioned

  • AA
    (Alcoa Inc)
    • $17.29 USD
    • -0.31
    • -1.79%
  • CAT
    (Caterpillar Inc)
    • $100.6 USD
    • -5.19
    • -5.16%
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