Bloomberg News

U.S. Stocks Snap Two-Week Slump on Economic Reports, ECB

October 06, 2012

U.S. Stocks Snap Two-Week Slump

Apple, the world’s most valuable company, lost 2.2 percent to $652.59, falling below its average price from the past 50 days. Photographer: Angel Navarrete/Bloomberg

U.S. stocks advanced, snapping a two- week decline for the Standard & Poor’s 500 Index, amid better- than-estimated economic reports and after the European Central Bank said it stands ready to start buying government bonds.

The S&P 500 reversed a rally in the week’s final session, as Apple Inc. (AAPL:US) slumped and optimism over the government’s monthly jobs report faded. Citigroup Inc. (C:US) and Bank of America Corp. (BAC:US) added more than 5.5 percent during the week. MetroPCS (PCS:US) Communications Inc. climbed 8 percent as Deutsche Telekom AG agreed to combine its T-Mobile USA unit with the company. Netflix Inc. (NFLX:US) soared 22 percent as an analyst said the video- subscription service has improved customer satisfaction.

The S&P 500 added 1.4 percent to 1,460.93, after slumping 1.7 percent in the previous two weeks. The Dow Jones Industrial Average climbed 173.02 points, or 1.3 percent, to 13,610.15. The 30-stock gauge rose to the highest level since December 2007.

“The trajectory is positive,” said Quincy Krosby, a market strategist for Newark, New Jersey-based Prudential Financial Inc., which oversees $961 billion. “We’ve had economic numbers that are better. We’ve had more reinforcement that the ECB stands ready to buy bonds. As we get into the earnings season, corporate guidance is going to be crucial.”

Equities rebounded from the biggest weekly drop since June on better-than-forecast factory orders and manufacturing data. The unemployment rate in the U.S. unexpectedly fell to 7.8 percent in September, the lowest since President Barack Obama took office in January 2009. ECB President Mario Draghi said the central bank is ready to undertake bond purchases “once all the prerequisites are in place.”

Earnings Season

Investors will be able to gauge the health of U.S. corporations as Alcoa Inc. (AA:US) unofficially starts the earnings season with the release of its third-quarter numbers on Oct. 9. The streak of 11 quarters of profit growth in S&P 500 companies is projected to end as analysts estimate a decline of 1.7 percent in earnings, according to data compiled by Bloomberg.

“The earnings season is critical on two points,” said Alan Gayle, a senior strategist at RidgeWorth Capital Management in Richmond, Virginia, which oversees about $47 billion. He spoke in a phone interview. “The first is: how much has the global slowdown impacted earnings? The next thing I expect earnings to do is give us guidance on 2013.”

Better-than-estimated earnings and speculation on central bank stimulus action have helped drive a 14 percent gain in the S&P 500 since June 1. The rally put the index close to its all- time high of 1,565.15 set in October 2007. The S&P 500 needs to rise 7.1 percent to reach that level.

Economic Optimism

Bets that the economic recovery won’t be derailed took the Morgan Stanley Cyclical Index of companies most-tied to growth up 2.3 percent for the week. Nine out of 10 groups in the S&P 500 (SPX) rose as financial companies had the biggest gain. The KBW Bank Index (BKX) jumped 3.7 percent. Citigroup increased 6.3 percent to $34.77. Bank of America added 5.6 percent to $9.32.

MetroPCS Communications rallied 8 percent to $12.65. Germany’s largest phone company will own 74 percent of a new U.S. mobile operator and MetroPCS shareholders will get $1.5 billion in cash, the companies said. Sprint Nextel Corp. (S:US) is in the early stages of evaluating a bid for MetroPCS that would counter the offer from Deutsche Telekom, three people familiar with the situation said. Sprint fell 5.8 percent to $5.20 for the week.

Netflix jumped 22 percent to $66.56. The company has grappled with customer-satisfaction issues since increasing prices in 2011 for users who both stream videos and get DVDs by mail and an attempt that year to separate those offerings. A Citigroup survey last month found that 48 percent of customers are “very or extremely satisfied,” compared with about 45 percent in the first and second quarter.

‘Evaluating Opportunities’

Murphy Oil Corp. (MUR:US) climbed 8.9 percent to $58.45. The petroleum company (MUR:US) said it’s “evaluating opportunities” after meeting with investors including Third Point LLC, which is calling for divestitures that it says could raise as much as $8.4 billion.

Technology companies, which comprise 20 percent of the S&P 500, had the only decline among 10 industries. The measure of 70 companies fell 0.2 percent for the week. Apple, the world’s most valuable company, lost 2.2 percent to $652.59, falling below its average price from the past 50 days.

Hewlett-Packard Co. (HPQ:US) plunged 14 percent to $14.73, the lowest since 2002. Chief Executive Officer Meg Whitman forecast 2013 profit that missed estimates and said a turnaround at the computer maker won’t happen any time soon.

‘It’s Brutal’

Whitman, one year into her tenure leading the world’s largest PC maker, said that the company lacks a “sharp, competitive focus” and needs to concentrate on fewer products. Hewlett-Packard is trying to boost profit by cutting jobs and reviving sales with multi-featured machines, including printers that double as scanners and copiers, as well as servers that combine computing, storage and networking.

“It’s brutal -- it’s really, really negative,” Brian Marshall, an analyst at ISI Group, said in an interview. “They’ve been very transparent. The problem with transparency is when they open up the full picture, it’s pretty ugly.”

Chipotle Mexican Grill Inc. (CMG:US) slumped 12 percent to $280.93 after hedge fund manager David Einhorn recommended selling the stock short during a presentation. Einhorn, head of Greenlight Capital Inc., said that Chipotle has too high of a valuation and will face challenges from Yum! Brands Inc.’s (YUM:US) Taco Bell chain.

Chipotle’s price-earnings ratio is 34, compared with 20 for the S&P 500 Restaurants Index, according to data compiled by Bloomberg. The shares have soared in recent years, reaching an intraday record of $442.40 in April after ending 2008 at $61.98. Short selling refers to the practice of borrowing stock and selling it, with the goal of profiting by repurchasing the shares later at a lower price.

Zynga Inc. (ZNGA:US) tumbled 13 percent to $2.48, the lowest price since the company went public in December. The game maker cut its forecast for full-year bookings, a predictor of sales, citing lower demand for titles such as “The Ville.”

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

  • AAPL
    (Apple Inc)
    • $524.94 USD
    • 5.93
    • 1.13%
  • C
    (Citigroup Inc)
    • $48.22 USD
    • 0.04
    • 0.08%
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