Bloomberg News

S&P 500 Rises Second Week Amid Government Budget Talks

December 01, 2012

The Standard & Poor’s 500 Index rose a second week, the longest advance since September, as investors watched developments in government budget negotiations amid better-than-anticipated economic reports.

Amazon.com Inc. (AMZN:US) and EBay Inc. gained more than 5 percent for the week as online spending surged 17 percent on the Monday after Thanksgiving. Costco Wholesale Corp. (COST:US) added 6.1 percent as the largest U.S. warehouse-club chain announced a special dividend. Knight Capital Group Inc. soared 35 percent after receiving takeover bids from Getco LLC and Virtu Financial LLC.

The S&P 500 (SPX) increased 0.5 percent to 1,416.18 for the week. The benchmark measure for American equities extended its rally since Nov. 16 to 4.1 percent. The Dow Jones Industrial Average advanced 15.90 points, or 0.1 percent, to 13,025.58.

“The market has been incredibly reactive to what’s coming out of Washington with regards to the fiscal cliff issue,” said Randy Frederick, managing director of active trading and derivatives at Charles Schwab Corp. in Austin, Texas. His firm has $1.9 trillion in client assets. “In general, the consensus is that they are going to get this resolved at least to some degree that the market will be satisfied with.”

Stocks were whipsawed as Congress returned from the Thanksgiving recess, seeking a budget deal to avoid $607 billion of automatic tax increases and spending cuts from kicking in next year. On Nov. 27, Senate Majority Leader Harry Reid said Democrats and Republicans have made “little progress” in negotiations. A day later, President Barack Obama and House Speaker John Boehner talked about the possibility of a deal before the end of the year.

‘Almost Nowhere’

By the end of the week, Obama warned of “prolonged negotiations” ahead, while Boehner told reporters “right now we’re almost nowhere” on talks.

Among the week’s economic reports, U.S. orders for durable goods in October topped economists’ forecasts, while consumer confidence rose in November to the highest level in more than four years. Gross domestic product grew at a 2.7 percent annual rate in the third quarter, up from a 2 percent prior estimate.

Investors also watched the latest developments in Europe’s attempts to tame its debt-crisis. German lawmakers approved Greece’s latest rescue package as Finance Minister Wolfgang Schaeuble warned that a default in the country where the debt crisis began could trigger the collapse of the single currency.

“There’s less pressure on Greece near term,” said Alan Gayle, senior strategist at RidgeWorth Capital Management in Richmond, Virginia, which oversees about $47 billion. He spoke in a phone interview. “Ultimately, Greece has the same issues with revenue generation and expense control that it’s had in the past. It just has longer time to deal with them.”

Corporate Earnings

The S&P 500 rose 0.3 percent in November, following a 2 percent slump in October, amid optimism on global central bank stimulus and better-than-estimated corporate earnings. Third- quarter profits at 72 percent of S&P 500 companies have beaten analysts’ estimates, according to data compiled by Bloomberg.

Online retailers rallied during the week as consumers spent about $1.46 billion on so-called Cyber Monday, compared with $1.25 billion a year ago, making it the heaviest online spending day in history, research firm ComScore Inc. said. Amazon.com, the world’s largest online retailer, increased 5.1 percent to $252.05. EBay, the biggest online marketplace, advanced 7.8 percent to $52.82.

Costco Wholesale added 6.1 percent to $103.92. It joined a growing number of companies, from Wynn Resorts Ltd. to Tyson Foods Inc., which are announcing special dividends at four times the pace of last year ahead of pending tax increases in 2013. The rate on dividends, which was reduced to 15 percent during the George W. Bush administration, is set to go up as President Obama and Congress work to draw more revenue from top earners.

Knight Capital

Knight Capital surged 35 percent, the most since 1999, to $3.37. Getco’s cash and stock offer values Knight at $3.50 a share, an 18 percent premium from the Nov. 27 close, and retains its public listing. Virtu submitted a bid to buy Knight for about $3 a share, a person with direct knowledge of the matter said. Knight was bailed out by six financial companies in August after losing more than $450 million in a trading malfunction.

Corning Inc. (GLW:US) climbed 8.3 percent to $12.23. The world’s largest maker of glass for flat-panel televisions forecast stronger-than-anticipated retail demand for consumer electronics this quarter.

Advanced Micro Devices Inc. (AMD:US) advanced 13 percent to $2.20. The second-largest maker of personal-computer processors rose on optimism that the sale (AMD:US) of its campus in Austin, Texas, may help shore up its cash reserves.

20-Month Standoff

ConAgra Foods Inc. jumped 5.1 percent to $29.86. It won the backing of Ralcorp Holdings Inc. (RAH:US) for a takeover with a $5 billion bid, ending a 20-month standoff after Ralcorp shareholders pressured the maker of private brand foods to stop opposing the deal. Buying Ralcorp will more than quadruple ConAgra’s private-label sales to $4.5 billion. Ralcorp surged 25 percent to $89.14.

Monster Beverage Corp. (MNST:US) surged 13 percent, the biggest gain since 2009, to $52.05. The largest (MNST:US) U.S. energy drink maker by sales volume rose after Goldman Sachs Group Inc. said a Food and Drug Administration response to questions over the safety of energy drinks was “encouraging.” Any regulatory outcome is likely to be “benign,” Judy Hong, an analyst with Goldman Sachs, said in a note.

Macy’s Inc. (M:US) and Target Corp. slumped after posting November same-store sales that trailed analysts’ estimates as superstorm Sandy depressed traffic early in the month. Macy’s, the second- biggest U.S. department-store company dropped 7.3 percent to $38.70. Target, the second-largest U.S. discount chain, slid 2.1 percent to $63.13.

Tiffany & Co. (TIF:US) sank 5 percent to $58.98. The second-largest luxury jewelry retailer cut its annual profit forecast for the third time this year after higher diamond costs ate into margins and customers curbed spending in weak economies.

Yum! Brands Inc. (YUM:US) sank 9.4 percent to $67.08. The owner of the Taco Bell and KFC fast-food chains said same-store sales (YUM:US) in China will fall in the fourth quarter.

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

  • AMZN
    (Amazon.com Inc)
    • $299.9 USD
    • 2.17
    • 0.72%
  • COST
    (Costco Wholesale Corp)
    • $141.77 USD
    • 0.21
    • 0.15%
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