Bloomberg News

Dow Posts Longest Weekly Rally Since October After Jobs Report

August 03, 2012

U.S. stocks rose for a fourth week, giving the Dow Jones Industrial Average the longest rally since October, as better-than-forecast jobs data erased a four-day drop amid investor disappointment with global stimulus efforts.

Technology companies climbed the most among the 10 industry groups in the Standard & Poor’s 500 Index. Apple Inc. (AAPL:US) jumped 5.2 percent amid speculation the company may join the Dow, while First Solar Inc. (FSLR:US) soared 18 percent on surging profit. Better- than-expected earnings at MetLife Inc. (MET:US) and Frontier Communications Corp. (FTR:US) sent their stocks up at least 9 percent. Knight (KCG:US) Capital Group Inc. plunged 61 percent after a trading error spurred a $440 million loss.

The S&P 500 added 0.4 percent for the week to 1,390.99. The benchmark index for American equities extended its 2012 gain to 11 percent. The Dow climbed 20.51 points, or 0.2 percent, to 13,096.17, the highest level since May 3.

“We’ve come to fall into this trap if you will, when it comes to central banks, we want something from them immediately and if we don’t get it, the market gets disappointed,” Mark Freeman, who oversees about $13 billion as chief investment officer at Westwood Holdings Group Inc. in Dallas, said in a phone interview. “At the end of the day, the fundamentals matter, and the fundamentals are doing OK.”

Equities reversed weekly losses on the final day, with the S&P 500 jumping 1.9 percent, after a Labor Department report showed American payrolls climbed more than forecast even as the jobless rate unexpectedly rose. The benchmark index slumped 1.5 percent in the previous four days as European Central Bank President Mario Draghi and Federal Reserve Chairman Ben S. Bernanke failed to reassure investors on immediate efforts to bolster the economy.

Debt Crisis

The S&P 500 slipped as much as 9.9 percent from an almost four-year high on April 2 amid concern Europe’s debt crisis is worsening and the global economy is slowing. The equity gauge has since climbed 8.8 percent after central banks in Europe and China cut interest rates.

U.S. stocks fell on Aug. 1 as the Fed held off on stepping up record stimulus, saying it will “closely monitor” economic and financial developments and “will provide additional accommodation as needed.” Equities slid the next day as Draghi kept interest rates on hold and signaled the ECB intends to join forces with governments to buy bonds, while conceding that Germany’s Bundesbank had reservations about the plan.

The rally in stocks on the final day gained strength as members of German Chancellor Angela Merkel’s coalition parties signaled they won’t stand in the way of Draghi’s bond plan.

‘Magic Bullet’

“The U.S. economy is continuing to plod along, not going into a recession,” James McDonald, chief investment strategist at Northern Trust Corp., said in the phone interview. The Chicago-based firm oversees $704.3 billion. “While Mario Draghi did not give us the magic bullet, they’re clearly working towards further intervention to help support the European Monetary Union.”

Computer and software makers in the S&P 500 climbed 1.5 percent as a group. Apple rose 5.2 percent to $615.70, the highest since April. The world’s largest company by market value is considering a stock split and its decision in March to pay its first dividend in 17 years makes it more likely the shares could be added to the Dow index, Toni Sacconaghi, an analyst at Sanford C. Bernstein & Co., wrote in a July 31 note.

First Solar surged 18 percent to $17.06 after second- quarter earnings increased 81 percent. The world’s biggest maker of thin-film panels boosted its full-year profit forecast.

Earnings Season

About 73 percent of S&P 500 companies which reported quarterly results have beaten estimates, according to data compiled by Bloomberg. Sales missed estimates at 59 percent of companies.

MetLife, the largest U.S. life insurer, jumped 9 percent to $33.19 after profit beat analysts’ estimates on gains from derivatives it uses to protect against a drop in interest rates.

Prudential Financial Inc. (PRU:US) rallied 8.2 percent, the most since December, to $52.03. The second-largest U.S. life insurer said profit more than doubled as its international business improved and the company recorded gains on derivatives.

Frontier Communications Corp. advanced 18 percent to $4.40 for the biggest increase in the S&P 500. The company, which sells voice and broadband service to individuals and businesses, reported per-share earnings that topped the average analyst estimate by 70 percent, the most since 2006, according to data compiled by Bloomberg.

Knight Plunges

Knight plunged 61 percent to $4.05. Errors related to the company’s trading software sent stocks moving as much as 151 percent on Aug. 1, prompting the New York Stock Exchange to review trading in 140 companies from Molycorp Inc. to AT&T Inc. Transactions that occurred during the height of the volatility were canceled in six securities, where prices swung at least 30 percent in the first 45 minutes.

Knight fought to preserve its business as concern grew about its solvency. On the final day of the week, Knight told brokers it received short-term financing, according to a person familiar with the matter. As the company opened its books to potential saviors, people with knowledge of the matter said KKR & Co., TPG Capital and Silver Lake were among buyout firms that had an initial interest -- while one said chances of a private- equity deal are small.

Abercrombie & Fitch Co. (ANF:US) slumped 20 percent to $29.37 for the biggest retreat in the S&P 500. The teen retailer cut its annual forecast, citing an anticipated drop in same-store sales in the second half of 2012.

Coach Inc. (COH:US), the largest U.S. luxury handbag maker, tumbled 15 percent, the most since August, to $52.66, after reporting revenue that trailed analysts’ estimates amid slowing sales growth in North America.

Facebook Inc. (FB:US) declined 11 percent to $21.09 for the week. The world’s biggest social-networking website dropped to its lowest level on Aug. 2. It was Facebook’s fifth straight day of losses after reporting earnings that showed slowing growth. The company snapped its losing streak on the final day of the week, jumping 5.2 percent, after Brian Wieser, an analyst at Pivotal Research Group, said the company could step up revenue growth with ad sales.

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

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


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Companies Mentioned

  • AAPL
    (Apple Inc)
    • $99.18 USD
    • -1.57
    • -1.58%
  • FSLR
    (First Solar Inc)
    • $63.71 USD
    • -2.10
    • -3.3%
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