Bloomberg News

U.S. Stocks Snap Two-Day Slump Amid Optimism Over Budget

December 05, 2012

U.S. stocks advanced, following a two-day decline in the Standard & Poor’s 500 Index, amid optimism lawmakers will reach a budget agreement before the end of the year and after economic data topped estimates.

Plains Exploration & Production Co. and McMoRan Exploration Co. (MMR:US) surged at least 23 percent as Freeport-McMoRan Copper & Gold Inc. (FCX:US) agreed to acquire (FCX:US) them for about $9 billion. Citigroup Inc. gained 6.3 percent on plans to eliminate more than 11,000 jobs and pull back from some emerging markets. Apple Inc. (AAPL:US) fell 6.4 percent on concern about Nokia Oyj getting a leg up in China and traders betting that a recent rally may have sputtered.

The S&P 500 rose 0.2 percent to 1,409.28 at 4 p.m. New York time. The Dow Jones Industrial Average added 82.71 points, or 0.6 percent, to 13,034.49. The Nasdaq Composite Index declined 0.8 percent to 2,973.70. More than 7 billion shares changed hands on U.S. exchanges, or 12 percent above the three-month average, according to data compiled by Bloomberg.

“The economy is still on track for moderate growth, but there are bigger issues to focus on,” said Jay Wong, a Los Angeles-based portfolio manager with Payden & Rygel, which oversees $75 billion. “The market’s reaction is based on investors’ focus on headlines and a strong appetite for a fiscal cliff resolution. The market will continue to react to any news in connection with a potential resolution.”

Equities rose as a few dozen Republicans joined a bipartisan call to break the impasse between President Barack Obama and House Speaker John Boehner over taxes for the highest- earning Americans, signing a letter calling for exploration of “all options. (COST:US)” Obama told a business group that “nobody wants to get this done more than me” and lawmakers probably could solve the budget debate in about a week if Republicans move.

Tax Rates

U.S. stocks fell yesterday after Obama held his ground about raising tax rates for the highest-income Americans. The S&P 500 has slipped 1.3 percent since Obama was re-elected on Nov. 6 as he seeks a deal with Republican lawmakers to prevent more than $600 billion of automatic tax increases and spending cuts from coming into effect next year.

Investors also watched economic data as orders for equipment such as computers and electrical gear climbed in October by the most in eight months, indicating U.S. manufacturing is stabilizing heading into the looming fiscal cliff. Service industries in the U.S. unexpectedly grew at a faster pace in November.

Jobs Report

This week’s Labor Department report will provide further clues on the outlook for the economy. Private payrolls increased by 90,000 in November, while unemployment held at 7.9 percent, according to the median of economist forecasts in a Bloomberg survey. Overall hiring including government jobs probably climbed by 87,000 after rising 171,000 in October.

“The market is looking for any semblance of economic growth,” John Augustine, who helps manage $26.1 billion as chief market strategist at Cincinnati-based Fifth Third Bancorp, said in a phone interview. “Stocks are going to ebb and flow from day to day on those prospects.”

Seven out of 10 groups in the S&P 500 rose today as utility and financial shares had the biggest gains. The KBW Bank Index added 1.7 percent as 20 of its 24 stocks advanced. A measure of 11 homebuilders in S&P indexes lost 3.5 percent.

Plains Exploration jumped 23 percent to $44.50 and McMoRan Exploration soared 87 percent to $15.82. Freeport slumped 16 percent to $32.16. Freeport will pay about $50 a share in cash and stock for Plains, representing a takeover premium of about 39 percent based on the companies’ closing share prices yesterday. Holders of each McMoRan share will get $14.75 in cash and 1.15 units of a royalty trust.

Citigroup Rallies

Citigroup (C:US) climbed 6.3 percent to $36.46. The lender will take a $1 billion charge this quarter to cover the 4.2 percent workforce reduction, which includes 1,900 jobs in trading, investment banking and transaction services, Citigroup said today in a statement. The bank, ranked third by assets in the U.S., said it wants to improve productivity in markets businesses such as cash equities where profit is lagging.

Financial services firms have announced more than 300,000 job cuts globally since the start of 2011, according to data compiled by Bloomberg. Goldman Sachs Group Inc., Morgan Stanley, Bank of America Corp. and UBS AG (UBS:US) are among rivals focused on reducing costs.

Bank of America gained 5.7 percent, the most in the Dow, to $10.46. JPMorgan Chase & Co. (JPM:US) jumped 1.6 percent to $41.20. Regions Financial Corp. rallied 1.9 percent to $6.57.

Travelers Cos. increased 4.9 percent to $74. The insurer said superstorm Sandy will cost the company about $650 million after tax and reinsurance and it plans to resume share buybacks.

‘Significant’ Discovery

Cobalt International Energy Inc. jumped 19 percent to $28.21 after the company announced a “significant” oil discovery in the Gulf of Mexico.

Facebook (FB:US) Inc. rose 0.9 percent to $27.71. The largest social-networking company will join the Nasdaq-100 Index (NDX) next week. Facebook will replace Infosys Ltd. before the start of trading on Dec. 12, Nasdaq OMX Group Inc. said, about seven months after the company’s $16 billion IPO.

The waiting period for entry into the index was a negotiating point with Facebook as it considered listing on Nasdaq or the New York Stock Exchange, a person with knowledge of the matter said in April.

Technology stocks in the S&P 500 lost 1.3 percent for the biggest decline among 10 groups.

Apple dropped 6.4 percent to $538.79. China Mobile Ltd. agreed to carry the Lumia 920T, a device based on Microsoft Corp.’s Windows Phone 8 software. While Apple has agreements with China Telecom Corp. and China Unicom (Hong Kong) Ltd. to sell iPhones, the company hasn’t yet forged a deal with China Mobile in the world’s largest mobile-phone market.

‘Technical Breakdown’

Apple’s slide also may be the result of traders predicting a drop after the stock failed to sustain a recent rally, a “classic technical breakdown,” according to Gene Munster, an analyst with Piper Jaffray Cos.

Munster said new so-called margin rules also may have been put in place by some investors that could limit how many Apple shares a firm can own. Investors may also be disappointed Apple isn’t issuing a special dividend like Oracle Corp., Wal-Mart Stores Inc. and other U.S. companies, he said.

Pandora Media Inc. (P:US) slumped 17 percent to $7.80. The Internet radio company said advertiser caution about spending will lead to a wider full-year loss than the company had forecast.

Weaker Demand

Altera Corp. (ALTR:US) dropped 3.6 percent to $31.01. The maker of programmable chips used in phone systems fell after saying fourth-quarter sales may decline (ALTR:US) more than analysts had estimated, citing weaker demand for its older products.

Options to protect against losses in Costco Wholesale Corp. have slipped to the cheapest level in two years as traders bet shares of the largest U.S. warehouse club will extend gains from an all-time high amid rising profits.

Puts that pay should the shares fall 10 percent cost 5.44 points more than calls betting on a 10 percent rally, down from 8.94 in August 2011, according to three-month data compiled by Bloomberg. The price relationship known as skew reached the lowest since November 2010 last week. The stock has rallied 27 percent this year and closed at a record $105.95 today.

Chief Executive Officer Craig Jelinek has been keeping prices low to increase store visits amid an unemployment rate that’s stuck around 8 percent three years into the economic recovery. Costco, whose profit has climbed an average 16 percent in the past three fiscal years, last month announced a special dividend of $7 a share to return cash to investors.

“It’s a good business that still has ample room to grow,” Gary Bradshaw, a Dallas-based money manager at Hodges Capital Management Inc., which oversees about $800 million including Costco shares, said in a phone interview yesterday. “In tough times, people are more conscious about their spending. There is tremendous value at Costco. The special dividend shows management has confidence they will continue to grow earnings going forward.”

To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net; Lu Wang in New York at lwang8@bloomberg.net.

To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net.


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Companies Mentioned

  • FCX
    (Freeport-McMoRan Inc)
    • $22.13 USD
    • 0.94
    • 4.25%
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