Bloomberg News

U.S. Stocks Rise on Policy Bets as Earnings Top Estimates

August 07, 2012

U.S. stocks advanced, sending the Standard & Poor’s 500 Index higher for a third straight day, amid better-than-estimated corporate earnings and speculation global central banks will take steps to boost economic growth.

JPMorgan Chase & Co. and Morgan Stanley (MS:US) rallied at least 1.9 percent to pace gains among financial companies in the S&P 500. Chesapeake Energy Corp., the second-largest U.S. natural-gas producer, increased 9.4 percent after reporting the highest quarterly profit (CHK:US) in the company’s history. Fossil Inc. (FOSL:US) surged 31 percent after forecasting earnings that exceeded analysts’ projections amid increasing sales of its Skagen brand.

About two stocks rose for each that fell on U.S. exchanges at 4 p.m. New York time. The S&P 500 (SPX) added 0.5 percent to 1,401.35. It gained 2.7 percent in three days. The Dow Jones Industrial Average climbed 51.09 points, or 0.4 percent, to 13,168.60. Volume for exchange-listed stocks in the U.S. was 6.4 billion shares, or about in line with the three-month average.

“The fear of things collapsing is going away,” said Tom Wirth, who helps manage $1.6 billion as senior investment officer for Chemung Canal Trust Co., in Elmira, New York. “The recession, which everyone was concerned about a month ago, is not going to happen. There’s a perception that the ECB is willing to buy bonds if needed.”

U.S. stocks rose as 72 percent of the S&P 500 companies which reported second-quarter results beat earnings estimates, Bloomberg data show. Federal Reserve Bank of Boston President Eric Rosengren said the central bank should pursue an “open-ended” easing program of “substantial magnitude.” German Chancellor Angela Merkel backed a bond-buying plan announced by the European Central Bank, a spokesman said yesterday.

Biggest Gains

Six out of 10 groups in the S&P 500 rose today as commodity and industrial shares had the biggest gains. The Morgan Stanley Cyclical Index of companies most-tied to the economy added 1.3 percent. The KBW Bank Index (BKX) of 24 stocks advanced 0.8 percent. JPMorgan rallied 2 percent to $37.01. Morgan Stanley jumped 2.6 percent to $14.50.

A measure of energy shares had the biggest gain in the S&P 500 among 10 industries, rallying 1.3 percent. Chesapeake (CHK:US) rose 9.4 percent to $19.37. The company increased the minimum it plans to raise through asset sales this year to $13 billion from $11.5 billion, and said more than half of that will come by the end of next month when it completes sales of Texas oifields.

Fossil surged 31 percent, the most in the S&P 500, to $91.77. It forecast full-year profit excluding certain items of as much as $5.34 a share, the Richardson, Texas-based company said in a statement today. Analysts projected $5.27, the average of 14 estimates compiled by Bloomberg.

Las Vegas

MGM Resorts International rallied 7.5 percent to $10.08. The largest casino operator on the Las Vegas Strip reported a smaller-than-anticipated loss in the second quarter amid lower winnings in Nevada. Sales (MGM:US) rose 29 percent, boosted by inclusion of the company’s 51 percent owned MGM China Holdings Ltd. subsidiary in the overall results for a full quarter, compared with one month a year earlier.

Sirius XM Radio Inc. (SIRI:US) climbed 4.6 percent to $2.30. The largest U.S. satellite-radio company boosted (SIRI:US) its annual profit forecast after adding subscribers.

Tower International Inc. (TOWR:US) gained 6.5 percent to $9.28 after the supplier of metal auto-parts reaffirmed its forecast for an earnings increase in 2013.

Cepheid Inc. (CPHD:US) climbed 13 percent to $38.70. The maker of rapid tests for infections announced an agreement with the U.S. government and the Bill & Melinda Gates Foundation to reduce the price of its tuberculosis screening in poorer countries.

Luxury Handbags

Coach Inc. (COH:US) jumped 1.9 percent to $55.89. The largest U.S. luxury handbag maker was raised to buy from hold at Canaccord Genuity Corp.

Tesoro Corp. (TSO:US) rallied 5 percent to $34.41. The independent refiner rose as analysts said a fire yesterday at Chevron Corp.’s Richmond, California, plant may push up the state’s gasoline prices.

BroadSoft Inc. (BSFT:US) surged 34 percent to $37.45. The maker of telecommunications software raised (BSFT:US) its full-year profit forecast and announced a deal for Adaption Technologies Ventures Ltd.

Knight Capital Group Inc. lost 0.3 percent to $3.06, reversing a rally of as much as 7.2 percent. The firm rejected a $500 million rescue-loan offer from Citadel LLC on Aug. 5 as it worked on a competing plan from a group of investors, said two people with knowledge of the matter.

The firm sought the lifeline after a programming malfunction spewed orders through exchanges Aug. 1 and saddled the company with a $440 million trading loss.

Pfizer, J&J

Pfizer (PFE:US) Inc., Johnson & Johnson (JNJ:US) and Elan Corp. ended most plans to develop an Alzheimer’s drug after a second trial failure, a blow to the companies’ efforts to market the first product to slow progress of the disease.

Until the bapineuzumab trials were stopped, Pfizer, Elan and J&J were competing with Indianapolis-based Eli Lilly (LLY:US) & Co. to create the first therapy to target a cause for Alzheimer’s, rather than just its symptoms. Trial results for the Lilly therapy, solanezumab, are due soon.

Pfizer lost 2.1 percent, the most in the Dow, to $23.74. Johnson & Johnson slid 0.8 percent to $68.29. Lilly fell 2.2 percent to $42.75.

Leap Wireless International Inc. tumbled 19 percent to $4.49. Its net customer losses almost tripled last quarter, a sign the company is struggling (LEAP:US) to keep up with larger carriers.

American Capital Agency Corp. (AGNC:US) lost 3.3 percent to $32.96. The real-estate investment trust plunged (AGNC:US) the most in 10 months at today’s open as millions of shares traded before the stock recovered about two-thirds of the loss.

First Minutes

About 6.5 million (AGNC:US) shares of the company changed hands in the first three minutes following the open of exchanges at 9:30 a.m. New York time today, more than the stock has traded on average in a full day this year, according to data compiled by Bloomberg.

NII Holdings Inc. (NIHD:US) slumped 24 percent to $6.11. The wireless carrier that operates the Nextel brand in Latin America cut its profit and sales forecasts (NIHD:US), citing mounting competition and network spending.

WMS Industries Inc. sank 18 percent to $14.99. The maker of gaming and video-lottery machines forecast (WMS:US) fiscal first-quarter revenue little changed from a year earlier.

Regional banks have become a more telling indicator of the U.S. stock market’s prospects than the country’s largest lenders, according to Donald Coxe, a strategy adviser to Bank of Montreal’s securities unit.

Lagging Behind

The KBW Regional Bank Index has lagged behind the S&P 500 most of the time since March 2009, when the latter gauge started rising from a 12-year low. The index of 50 lenders has also failed to keep pace since the first week of June, when stocks began their current rally.

This performance contrasts with the KBW Bank Index, consisting of Bank of America Corp. (BAC:US), Citigroup Inc., JPMorgan Chase & Co. (JPM:US), Wells Fargo & Co. (WFC:US) and 20 more of the biggest U.S. banks. The gauge, included in the chart, has gained more than the S&P 500 since March 2009 and in the past two months.

“The tide is turning away from those mega-institutions,” Coxe wrote in an Aug. 3 report. The shift results from “badly behaved bankers” who relied on the government for help during the 2008 financial crisis and fought efforts to rein in their business afterward, the report said.

Pacific Investment Management Co.’s Mohamed El-Erian said investors who took advantage of the rally in risk markets should reduce their exposure in favor of safer assets amid domestic economic weakness and global political stresses.

‘Uncertain Time’

“This is an unusually uncertain time,” El-Erian, the chief executive officer of the world’s largest manager of bond funds, said on Bloomberg Radio’s “Hays Advantage” with Kathleen Hays. “It’s not just Europe. Let’s not forget there is a fiscal cliff in the U.S. Let’s not forget geopolitics is heating up in Iran again.”

Treasury yields remain close to lowest ever amid a slowing economy, global financial turmoil and U.S. unemployment above 8 percent for more than three years. The year-end “fiscal cliff” of higher taxes and reductions in spending on defense and other government programs that will take effect unless Congress acts also clouds the economic outlook, he said.

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

  • MS
    (Morgan Stanley)
    • $34.5 USD
    • 0.11
    • 0.32%
  • CHK
    (Chesapeake Energy Corp)
    • $21.1 USD
    • -0.49
    • -2.32%
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