Bloomberg News

U.S. Stocks Climb Amid Optimism Over Budget Negotiations

November 29, 2012

U.S. stocks rose, sending the Standard & Poor’s 500 Index higher for a second day, amid investor optimism that lawmakers will reach a resolution in federal budget negotiations.

All 10 groups in the S&P 500 rose as commodity producers rallied. Apple Inc. (AAPL:US) and Advanced Micro Devices Inc. (AMD:US) led an advance in technology stocks. Kroger Co. (KR:US) jumped 4.8 percent after boosting its profit projection for the year. Walt Disney Co., the world’s largest entertainment company, added 1.1 percent after raising its dividend. Tiffany & Co. (TIF:US) tumbled 6.2 percent after cutting its profit forecast. Kohl’s Corp. (KSS:US) plunged 12 percent after reporting disappointing sales for November.

The S&P 500 increased 0.4 percent to 1,415.95, the highest level since Nov. 6, at 4 p.m. in New York. The Dow Jones Industrial Average rose 36.71 points, or 0.3 percent, to 13,021.82. About 6.2 billion shares traded hands on U.S. exchanges today, in line with the three-month average, according to data compiled by Bloomberg.

“There’s going to be increasingly divisive negotiations that might shake the market’s confidence a bit,” Jeffrey Kleintop, chief market strategist at LPL Financial Corp. in Boston, which oversees $350 billion, said in a telephone interview. “We might see a lot of volatility.”

Equities briefly erased gains after Speaker of the House John Boehner said to reporters in Washington today that “no substantive progress” has been made in budget talks. Senate Majority Leader Harry Reid said Democrats were all on the same page on budget talks and Senator Chuck Schumer said there has been progress, helping the market recover after Boehner’s comments.

Whipsawed Market

U.S. stocks have been whipsawed amid lawmakers’ comments on whether an agreement can be reached to avert more than $600 billion in spending cuts and tax increases scheduled to begin on Jan. 1. The S&P 500 rose yesterday after comments by Boehner and President Barack Obama fueled optimism a deal would be made before the end of the year. The benchmark gauge of U.S. stocks has declined 0.9 percent since the president won re-election on Nov. 6.

Obama reached out to chief executives and middle-income taxpayers yesterday, imploring them to press Congress to avoid the fiscal cliff as he said he wants to get a deal “done before Christmas.” Treasury Secretary Timothy F. Geithner arrived at the Capitol today to face demands from Republican leaders to spell out spending cuts. He began his round of meetings with each of the top four leaders in Congress in Reid’s office.

‘Incremental Statements’

“Equity markets will be very beholden to the incremental statements regarding the fiscal cliff, either progress or lack of progress,” Jim Russell, the Cincinnati-based chief equity strategist at U.S. Bank Wealth Management, which oversees about $113 billion, said in a telephone interview.

Goldman Sachs Group Inc.’s David Kostin wrote in a report that stocks will outperform Treasuries next year as S&P 500 sales and profit growth boost the price-earnings multiple. “The turbulent political environment that curtailed corporate risk- taking in 2012 will end,” Kostin, chief U.S. equity strategist at the New York-based firm, said.

Stocks gained earlier as a report showed Americans signed more contracts in October to purchase previously owned homes, another sign the recovery in the housing market is being sustained. The index of pending home resales climbed 5.2 percent, exceeding the highest estimate in a Bloomberg survey of economists, to 104.8, figures from the National Association of Realtors showed today in Washington. The median forecast in the Bloomberg survey called for a 1 percent gain.

GDP Growth

Gross domestic product grew at a 2.7 percent annual rate, up from a 2 percent prior estimate, revised figures from the Commerce Department showed today in Washington. The median forecast of 82 economists surveyed by Bloomberg called for a 2.8 percent gain. Fewer Americans filed first-time claims for unemployment insurance payments last week as the labor market disruptions wrought by superstorm Sandy ebbed.

Raw-material producers rose 0.6 percent as a group today. The S&P GSCI Index, which tracks 24 commodities, halted three straight days of losses, climbing 1.1 percent.

Technology companies also advanced, increasing 0.4 percent. Apple, the world’s most valuable company, rallied 1.1 percent to $589.36. AMD added 4.1 percent to $2.04. The second-largest maker of personal-computer processors (AMD:US) has jumped 8.5 percent in two days amid optimism that the sale of its campus in Austin, Texas, may help shore up cash reserves.

Kroger, Disney

Kroger rose 4.8 percent to $26.25. The supermarket operator boosted its profit projection for the fiscal year to at least $2.44 a share. That’s up from the previous guidance of no more than $2.42 and higher than the average analyst estimate.

Walt Disney (DIS:US) gained 1.1 percent to $49.72 after raising its annual dividend by 25 percent, joining other companies boosting their payouts ahead of an expected tax-rate increase next year. The payment of 75 cents per share will be made on Dec. 28 to shareholders as of Dec. 10. The previous 60-cent annual dividend (DIS:US) was paid to investors in January.

Research In Motion Ltd. (RIM) added 4 percent to $11.54 as Goldman Sachs upgraded the BlackBerry maker to buy from neutral, saying the new BlackBerry 10 phones could help it return to profitability in fiscal 2014.

Pandora Media Inc. (P:US) increased 7.5 percent to $8.79. Cannacord Genuity Ltd.’s Michael Graham, who rates the biggest online radio service with a buy, said Apple’s recent management changes may slow the development of the iPhone maker’s competing Internet radio.

Tiffany Tumbles

Tiffany tumbled 6.2 percent to $59.80. The world’s second- largest jewelry retailer cut its annual profit forecast (TIF:US) for the third time this year after higher diamond costs ate into margins and customers curbed spending in weak economies. The New York- based company’s gross margin, a key measure of profitability, shrank more than analysts anticipated last quarter as precious- metals costs also increased.

Kohl’s plunged 12 percent to $45.02. The department-store chain operator said same-store sales in November will be down 5.6 percent, missing the average analyst estimate, which called for an increase of 2.1 percent.

Supervalu Inc. (SVU:US) sank 19 percent, the most since July, to $2.28. Cerberus Capital Management LP’s pursuit of the grocery- chain operator has stalled because the private-equity firm has had trouble obtaining the funds for a leveraged buyout, said people familiar with the matter. Potential lenders are balking because they’re concerned over how the Eden Prairie, Minnesota- based chain will manage the increased debt load as revenue shrinks, said the people.

Black Friday

Aeropostale Inc. (ARO:US) dropped 5 percent to $13.42 after the teen-apparel retailer projected fourth-quarter earnings per share of 36 cents to 41 cents, compared with the average analyst estimate that called for 55 cents. Chief Executive Officer Thomas Johnson said Black Friday weekend sales were “encouraging,” while he remains “cautious” for the rest of the quarter.

A Bloomberg Global Poll published today showed that three out of four global investors expect Obama and congressional leaders to reach a short-term agreement. Only 6 percent of investors anticipate a political impasse that would send the U.S. economy over the fiscal cliff and into a recession, according to the poll conducted on Nov. 27.

The world economy is in its best shape in 18 months as China’s prospects improve and the U.S. looks likely to avoid the fiscal cliff, according to the poll. Two-thirds of the 862 surveyed described the global economy either as stable or as improving. That’s up from just over half who said that in September and is the most since May 2011.

The U.S. came out on top for the eighth straight quarter when investors were asked which markets will offer the best opportunities over the next year.

To contact the reporter on this story: Inyoung Hwang in New York at ihwang7@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
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  • AMD
    (Advanced Micro Devices Inc)
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    • -1.79%
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