Bloomberg News

Dow Average Rises to 5-Year High Amid Debt-Ceiling Talks

January 18, 2013

U.S. stocks rose, sending the Dow Jones Industrial Average to a five year-high, as House Republicans plan to vote next week on a temporary increase in the debt-limit and investors watched corporate earnings.

Morgan Stanley (MS:US) and General Electric Co. (GE:US) advanced at least 3.4 percent as earnings exceeded estimates. Intel Corp. (INTC:US) dropped 6.3 percent as the world’s largest chipmaker reported a second straight quarter of declining sales. Capital One (COF:US) Financial Corp., the lender that gets more than half of its revenue from credit cards, sank 7.5 percent as profit missed projections.

The Standard & Poor’s 500 Index rose 0.3 percent to 1,485.98 at 4 p.m. New York time, reversing an earlier drop of 0.4 percent. The Dow added 53.68 points, or 0.4 percent, to 13,649.70. The stock market will be closed on Jan. 21 for a holiday. About 6.6 billion shares changed hands on U.S. exchanges, 6.9 percent above the three-month average.

“It’s a bonbon market,” said John Manley, who helps oversee about $212 billion as chief equity strategist for Wells Fargo Advantage Funds in New York. He spoke in a telephone interview. “We’ve had little pleasant packets of surprises as these corporations keep coming through. I don’t think the box’s finished. Yet you need to remember that the market is near a five-year high and the economy is recovering at a subpar rate.”

Equities rebounded as Majority Leader Eric Cantor of Virginia said in a statement that members of Congress won’t be paid if the House or Senate doesn’t pass a budget by the end of the proposed three-month debt-limit increase. The Treasury Department has said the U.S. will exceed its $16.4 trillion borrowing authority sometime from mid-February to early March. Earlier losses were driven by data showing consumer confidence in the U.S. unexpectedly dropped in January.

VIX Tumbles

Nine out of 10 groups in the S&P 500 (SPX) rose today as industrial shares had the biggest gain. The Chicago Board Options Exchange Volatility Index, which measures the cost of using options as insurance against declines in the S&P 500, fell 8.2 percent to 12.46, the lowest level since April 2007.

The S&P 500 is 5.1 percent below its all-time high of 1,565.15 set in October 2007. The Dow is less than 4 percent away from hitting its record of 14,164.53. About 72 percent of the 67 S&P 500 companies which have reported quarterly results beat analysts forecasts. Fourth-quarter earnings grew 3.8 percent, according to analysts’ estimates compiled by Bloomberg. At the end of last week, they forecast 2.5 percent growth.

‘Exuberant’

“Anything that gets Congress to think about things and come up with a solution ahead of time provides some reassurance,” Bruce McCain, chief investment strategist at the private-banking unit of KeyCorp in Cleveland, said in a phone interview. His firm oversees $20 billion. “Don’t forget that we still have substantial debt problems, the economy is still sluggish and companies are beating low-balled estimates. It’s pretty early to be exuberant.”

Morgan Stanley rose 7.9 percent to $22.38. Chief Executive Officer James Gorman, 54, is grappling with higher capital requirements and the firm’s failure to post revenue growth in the first nine months of last year. His plan to reduce costs through job cuts and pay deferrals helped fuel a 28 percent jump in the stock price in the past two months.

GE advanced 3.5 percent to $22.04. It overcame a year-end slump that deepened as President Barack Obama and his opponents in Congress negotiated to avoid $600 billion of automatic spending cuts and tax hikes that had been scheduled to begin taking effect on Jan. 1. Orders for industrial equipment grew 2 percent in the fourth quarter, pushing its backlog to a record $210 billion.

State Street

State Street Corp. rose 5.9 percent to $53.36. The third- largest custody bank said fourth-quarter profit climbed 15 percent after global equity markets rose last year, helping to boost fees and overcome the impact of low interest rates.

Netflix Inc. (NFLX:US), the largest U.S. mail-order movie-rental service, added 1.5 percent to $99.17 after the company was raised to buy from neutral at Janney Montgomery Scott LLC by equity analyst Tony Wible. The 12-month share-price estimate is $129.

Research In Motion Ltd (RIM) rallied 6.2 percent to $15.84 after being raised to buy from hold at Jefferies Group Inc. by equity analyst Peter Misek. The 12-month share-price estimate is $19.50.

Life Technologies Corp. (LIFE:US) gained 11 percent to $60.79 after hiring Deutsche Bank AG and Moelis & Co. to assist in a strategic review that the Financial Post newspaper said could end in the gene-sequencing company’s sale.

Intel Slumps

Intel dropped 6.3 percent to $21.25. The company, whose microprocessors run more than 80 percent of the world’s PCs, is struggling as that market faces a second straight year of lower sales, according to analysts at JPMorgan Chase & Co. Intel hasn’t yet gained ground with mobile chips aimed at taking business from Qualcomm Inc. in smartphones and tablets, devices that are luring buyers who have less money to spend in a weak economy.

Capital One sank 7.5 percent to $56.99. The lender that gets more than half of its revenue from credit cards posted a fourth-quarter profit that missed analysts’ estimates as loan losses climbed.

Visa Inc. (V:US) retreated 1 percent to $158.27 after being downgraded to neutral from outperform at Robert W. Baird & Co. by equity analyst David Koning. The 12-month share-price estimate is $165.

Bearish Options

Bearish options trading on Boeing Co. (BA:US) has surged to a record after defective batteries led regulators to ground the company’s global fleet of 787 Dreamliners.

About 138,000 puts that give the right to sell shares of the world’s largest planemaker changed hands in the past two days, the most since Bloomberg began tracking the data in 1995. While the shares fell 3.4 percent on Jan. 16, the most in seven months, they rose 1.2 percent yesterday.

The U.S. Federal Aviation Administration, which certified the 787 Dreamliner in 2011, ordered flights stopped until airlines can show the plane’s lithium-ion batteries are safe, according to an agency statement on Jan. 16. The FAA’s move, its first in 34 years to ground an entire plane model, has set off a race to find and fix whatever caused the battery-fault warning on a 787 operated by All Nippon Airways Co. (9202) and a fire on a Japan Airlines Co. jet.

“I worry that there is a battery problem that’s more than just a couple of units, that might require some re- engineering,” William Hart, president of Hartline Investment Corp., which has $350 million under management, said in a phone interview from Chicago yesterday. “There could be more than just this problem. There could be more that they haven’t yet uncovered.”

To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net; Sarah Pringle in New York at springle1@bloomberg.net

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


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Companies Mentioned

  • MS
    (Morgan Stanley)
    • $38.72 USD
    • -0.09
    • -0.23%
  • GE
    (General Electric Co)
    • $25.78 USD
    • -0.05
    • -0.19%
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