Bloomberg News

U.S. Stocks Rise on Speculation Europe to Act on Crisis

July 30, 2012

U.S. stocks advanced, after the biggest two-day rally this year in the Standard & Poor’s 500 Index, on bets policy makers will act to ease Europe’s crisis.

Best Buy Co. (BBY:US) added 1.1 percent after Bloomberg News reported that founder Richard Schulze has been recruiting executives to help lead the retailer if his attempt to take the company private is successful. JPMorgan Chase & Co. (JPM:US) lost 1.4 percent as Deutsche Bank AG cut its recommendation.

About four stocks rose for every three falling on U.S. exchanges at 10:29 a.m. New York time. The S&P 500 gained 0.3 percent to 1,390.65. The Dow Jones Industrial Average advanced 44.50 points, or 0.3 percent, to 13,120.16 today.

“Policy makers are saying: hey, we have another card to play,” said Ann Miletti, fund manager for Wells Fargo Advantage Funds in Menomonee Falls, Wisconsin. Her firm manages $201 billion. “It’s a positive to have indications out of Europe that they are willing to do things that the market feared they weren’t willing to do before, such as buying bonds.”

European Central Bank President Mario Draghi meets with U.S. Treasury Secretary Timothy Geithner in Frankfurt today after leaders in Berlin, Paris and Rome backed him by saying they will do what’s needed to protect the 17-nation euro. Federal Reserve policy makers will meet ahead of the jobs report to decide whether additional stimulus is needed to combat a slowing economy as Europe’s debt crisis lingers.

Companies such as Lockheed Martin Corp. (LMT:US) are among those warning they’ll have to reduce headcounts later this year in the run-up to the so-called U.S. fiscal cliff of automatic tax increases and government spending cuts.

Monthly Return

The S&P 500 erased its monthly decline last week amid bets on global policy action as European Central Bank President Mario Draghi pledged to do whatever it takes to preserve the euro. He meets with U.S. Treasury Secretary Timothy Geithner in Frankfurt today and is also attempting to win over Bundesbank President Jens Weidmann, a critic of ECB bond purchases. The S&P 500 was up 1.8 percent this month through July 27.

Best Buy gained 1.1 percent to $17.95. Schulze “is talking to people he trusts,” J.D. Wilson, senior vice president of enterprise capabilities, said in an interview. Wilson, who said his position is being eliminated as part of Best Buy’s cutbacks, was approached by Schulze in June and said he would work for the company if a deal went through.

Shaw Group Inc. (SHAW:US) surged 58 percent to $32.25. Chicago Bridge & Iron Co. agreed to buy the company for about $3 billion, expanding its portfolio of engineering and construction projects across the energy industry and adding nuclear building services. Chicago Bridge & Iron tumbled 13 percent to $35.28.

Earnings Expectations

JPMorgan lost 1.4 percent to $36.36. The shares were cut to hold from buy at Deutsche Bank, which said earnings expectations may be too high.

The Chicago Board Options Exchange Volatility Index has fallen to the lowest daily average in five years, pushed down amid optimism that policy makers will support growth and prevent Europe’s debt crisis from derailing the global recovery.

The VIX’s mean rate of 18.9 in 2012 compares with 24.2 last year and is the lowest since 17.5 in 2007, according to data compiled by Bloomberg. The benchmark gauge for options that protect against losses in the S&P 500 has held below 20.7, its two-decade average, 77 percent of the time in 2012.

Demand for options linked to the S&P 500 has fallen after the index rallied 6.2 percent during the past 12 months, the most among the world’s 10 largest developed stock markets.

“Investors aren’t paying for volatility because they believe that government intervention will put a floor on stock prices,” Sean Heron, who manages options strategies at Glenmede Trust Co., said in a phone interview last week. The Philadelphia-based firm oversees about $21 billion. “The fear of a big down market has been diminished.”

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

  • BBY
    (Best Buy Co Inc)
    • $34.61 USD
    • -0.35
    • -1.01%
  • JPM
    (JPMorgan Chase & Co)
    • $61.11 USD
    • -0.21
    • -0.34%
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