Bloomberg News

U.S. Stocks Advance as Spain Pledges Deficit Cuts

September 27, 2012

U.S. Stock Futures Rise Amid Bets China Will Stimulate Economy

Goodyear Tire & Rubber Co. increased 3.4 percent to $12.40. Photographer: David Paul Morris/Bloomberg

U.S. stocks advanced, snapping a five-day decline for the Standard & Poor’s 500 Index, as Spain pledged to cut its deficit and speculation grew that China’s government will do more to support economic growth.

General Electric Co., the world’s largest maker of jet engines and diesel locomotives, climbed 2.9 percent after raising its forecast for profit growth at its industrial units. Goodyear Tire & Rubber Co., the largest U.S. tiremaker, rallied 3.9 percent as Goldman Sachs Group Inc. advised buying the shares. Discover Financial Services added 7.3 percent after the credit-card company’s earnings beat analysts’ estimates.

The S&P 500 rose 1 percent to 1,447.15 at 4 p.m. New York time, after slumping 1.9 percent in five days. The Dow Jones Industrial Average added 72.46 points, or 0.5 percent, to 13,485.97. Volume for exchange-listed stocks in the U.S. was 5.7 billion shares, or 4.4 percent below the three-month average.

“People are still quite sensitive to news out of Europe and macro developments in general,” John Carey, who helps oversee about $220 billion at Pioneer Investments in Boston, said in a telephone interview. “Yes, people are encouraged by Spain’s austerity package. On the other hand, one does wonder what cuts will mean for growth. There’s also been speculation of Chinese stimulus.”

Stocks joined a global rally as Spanish Prime Minister Mariano Rajoy’s nine-month-old government announced its fifth austerity package in what may be a move to head off tougher conditions demanded as part of a potential European bailout. Shanghai Securities News said there was speculation the government would announce market-boosting measures.

Economic Data

In the U.S., fewer Americans than forecast filed first-time claims for unemployment insurance payments last week. Equities rose even after data showed that the U.S. economy grew 1.3 percent in the second quarter, less than previously estimated. Americans signed fewer contracts than forecast to purchase previously owned homes in August. Another report showed a gain in demand for capital goods such in August failed to make up for declines in the previous two months.

The S&P 500 has risen 2.9 percent in September and is on pace for the fourth monthly gain, the longest streak since March. Investors bought stocks amid better-than-estimated earnings and government measures to stimulate the economy.

If history is any guide, October may be another month of gains for stocks. Over the last 20 years, the Dow has risen an average 1.8 percent in October, with positive returns 70 percent of the time, according to data compiled by Bespoke Investment Group. October has been the third best month for the 30-stock gauge behind November and April, the data shows.

Biggest Gains

Nine of 10 groups in the S&P 500 rose today as technology, energy and raw material shares had the biggest gains. The Morgan Stanley Cyclical Index of companies most-tied to the economy advanced 1 percent. Commodity producers joined a 1.3 percent rally in the S&P GSCI gauge of raw materials amid speculation that stimulus measures will spur demand from China. Alpha Natural Resources Inc. increased 2.4 percent to $6.75. Monsanto Co. advanced 2.1 percent to $91.36.

“The possibility of more Chinese stimulus is real,” said Peter Jankovskis, who helps manage more than $3 billion at Oakbrook Investments in Lisle, Illinois. “That does provide some hope to the market.”

GE added 2.9 percent to $22.73. Operating earnings at the company’s industrial businesses will rise about 10 percent this year, topping the previous forecast for a gain of 5 percent to 10 percent, according to a presentation today from the Fairfield, Connecticut-based company.

Goodyear Rallies

Goodyear increased 3.9 percent to $12.46. Goldman Sachs raised its recommendation to buy from neutral, citing improving replacement tire volume in North America and Europe and lower raw material costs.

Discover Financial Services added 7.3 percent to $39.71. The credit-card lender that struck a partnership with EBay Inc.’s PayPal unit posted a fiscal third-quarter profit that beat Wall Street estimates as fewer loans soured.

The KBW Bank Index of 24 stocks added 1.1 percent. Bank of America Corp. climbed 1.8 percent to $8.97. JPMorgan Chase & Co. increased 1.1 percent to $40.68.

M&A Boost

MetroPCS Communications Inc. jumped 6.2 percent to $11.95. The prepaid wireless carrier rose as DealReporter said the company has held talks with suitors such as Sprint Nextel Corp. and Dish Network Corp. Deutsche Telekom AG’s T-Mobile USA also participated in talks with MetroPCS, DealReporter said, citing an unidentified source familiar with the matter. Spokesmen for MetroPCS, Dish, Sprint and T-Mobile USA declined to comment.

Sealy Corp. rose 2.3 percent to $2.19 as Tempur-Pedic International Inc. agreed to buy it for about $229 million, combining the two biggest publicly-traded mattress companies. The offer is 2.8 percent more than Sealy’s closing price yesterday. Tempur-Pedic will also assume or repay all of Sealy’s outstanding and convertible debt, according to a statement.

Knight Capital Group Inc. posted its best two-day gain in almost two months after its new ownership structure forced a rebalancing in equity indexes. The stock climbed 2.3 percent to $2.67 today after rallying 8.8 percent yesterday. A $440 million loss spurred by a trading error Aug. 1 sent the shares plunging 73 percent last month.

Knight’s outstanding shares have increased to about 182 million this month from fewer than 100 million as investors in the company’s $400 million bailout swapped convertible securities for common stock. The Russell 3000 Index and the Russell 2000 Index increased their representation of Knight shares on Sept. 1, according to Russell Investments.

Dollar General

Dollar General Corp. retreated 1.6 percent to $52. The largest U.S. dollar-store chain reported a 30 million-share secondary stock offering.

Cepheid Inc. sank 10 percent to $35.18. The maker of medical tests cut its third-quarter sales forecast. Sales for the quarter will be $79 million to $81 million, the company said in a statement yesterday. Interruptions in the supply of Xpert cartridge parts will postpone more than $5 million in orders past the end of the quarter, Cepheid said.

H.B. Fuller Co. plunged 9.5 percent to $30.22. The U.S. manufacturer of adhesives lowered its outlook for 2012 sales. The company, based in St. Paul, Minnesota, reported third- quarter results after the close of regular trading yesterday.

Costs to protect against losses in oil jumped to a 16-month high compared with U.S. stocks, a sign the slowing economic recovery may be a greater risk to energy demand than to share prices.

Volatility Index

The Chicago Board Options Exchange Crude Oil Volatility Index, tracking 30-day options on the United States Oil Fund LP, reached a two-month high of 36.58 on Sept. 19. The same day, the ratio between the oil gauge and the CBOE Volatility Index for equities rose to its highest since May 2011.

“We continue to get very sloppy economic data out of China and Europe, which are a headwind to oil,” Jim Russell, the Cincinnati-based chief equity strategist at U.S. Bank Wealth Management, which oversees about $80 billion, said in a Sept. 24 phone interview. “The economic reality is that demand is likely to remain muted,” he said. “All of this hasn’t really been influencing equities just yet.”

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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