U.S. stocks gained, following the biggest decline in benchmark indexes since November, amid better-than-estimated housing and consumer confidence data.
PulteGroup Inc. (PHM:US) and KB Home jumped at least 5.7 percent to pace gains among homebuilders. Home Depot Inc. (HD:US) rallied 5.7 percent as it raised its dividend and approved a $17 billion share buyback after profit beat analysts’ estimates. Macy’s Inc. (M:US), the second-largest U.S. department-store chain, gained 2.8 percent after forecasting earnings that beat projections.
The Standard & Poor’s 500 Index advanced 0.6 percent to 1,496.94 at 4 p.m. in New York, after tumbling 1.8 percent yesterday. The Dow Jones Industrial Average increased 115.96 points, or 0.8 percent, to 13,900.13. About 7.2 billion shares changed hands on U.S. exchanges today, or 14 percent above the three-month average.
“The economic numbers have been holding up really well,” said Brad Sorensen, director of market and sector analysis at San Francisco-based Charles Schwab Corp. His firm has $2.01 trillion in client assets. “The home data show that the housing market is rebounding and should continue to contribute to growth. It helps to feed into consumer confidence as well. They’re related. In a time when we see more uncertainty rising, decent economic data helps to calm things down a little bit.”
Equities rose as data showed purchases of new homes in the U.S. jumped in January to the highest level since July 2008, indicating the industry will keep adding to growth in the economy. Home prices in 20 U.S. cities rose in the 12 months to December by the most in more than six years. Confidence among U.S. consumers jumped more than forecast in February.
Federal Reserve Chairman Ben S. Bernanke defended the central bank’s unprecedented asset purchases, saying they are supporting the expansion with little risk of inflation or asset- price bubbles. He spoke today in prepared testimony to the Senate Banking Committee in Washington.
Automatic federal budget cuts set to begin March 1 will put a “significant” burden on the economy if lawmakers can’t avert the reductions, Bernanke told lawmakers in the first day of his semiannual monetary policy report to Congress. He also urged lawmakers to put the budget on a “sustainable long-run path.”
Bernanke and his colleagues on the Federal Open Market Committee are debating whether to curtail $85 billion in monthly bond-buying amid concern the Fed’s record $3.1 trillion balance sheet may encourage excessive risk-taking by investors and complicate the Fed’s exit from easing. Several participants at the Jan. 29-30 meeting said the Fed should be prepared to vary the pace of purchases as the economic outlook changes, according to minutes released last week.
Global stocks fell as Italy’s election deadlock reignited concern Europe’s debt crisis will deepen. As results pointed to a hung parliament, Italy was headed toward a political stalemate that threatens to derail 15 months of austerity under Prime Minister Mario Monti’s government. Former Italian Prime Minister Silvio Berlusconi acknowledged rival Pier Luigi Bersani’s narrow victory in the lower house of Parliament and said he’s open to a broad alliance to avoid a second election.
The S&P 500 has gained 5 percent this year as U.S. lawmakers agreed on a compromise on taxes in January and amid better-than-estimated corporate earnings. About 75 percent of the S&P 500 companies that have released quarterly results beat profit estimates, according to data compiled by Bloomberg. The index trades at 14.8 times reported earnings, below the average since 1954 of 16.4.
All 10 groups in the S&P 500 gained today as commodity and consumer discretionary companies had the biggest gains. A measure of 11 homebuilders in S&P indexes jumped 4.2 percent. PulteGroup gained 5.7 percent to $19.05. KB Home increased 7.2 percent to $18.37.
The Chicago Board Options Exchange Volatility Index, which measures the cost of using options as insurance against declines in the S&P 500, slumped 11 percent to 16.87. The gauge, which yesterday surged the most since 2011, had the biggest drop since Jan. 2 today.
Home Depot added $3.64 to $67.56. Rising home values are encouraging consumers to spend more on remodeling while the repairs after Hurricane Sandy spurred demand in the U.S. Northeast. The average purchase at Home Depot, the largest U.S. home-improvement retailer, rose 5.6 percent to $55.46 while the number of customer transactions increased 8.6 percent to 329.1 million, helped by an extra week in the quarter.
Macy’s gained $1.07 to $39.59. The company will earn as much as $3.95 a share this year, the Cincinnati-based retailer said in a statement today. The analysts (M:US) surveyed by Bloomberg estimated $3.84 on average.
Apple climbed 1.4 percent to $448.97. The company should split its stock 10 for 1 rather than follow a proposal by Greenlight Capital Inc.’s David Einhorn for a new class of dividend-paying preferred stock, Laurence Balter, chief market strategist at Oracle Investment Research, said in a note today. A stock split would spur a rally in the shares by attracting individual investors willing to buy Apple at a lower price, while Einhorn’s plan would deplete the company’s cash flow, he said.
SanDisk Corp. gained 2.2 percent to $50.39. The maker of flash memory for mobile devices was raised to outperform, which is the equivalent of buy, at RBC Capital Markets by equity analyst Doug Freedman. The 12-month share-price estimate is $65.
JPMorgan Chase & Co. (JPM:US) lost 0.2 percent to $47.60, after gaining as much as 1.2 percent earlier today. The biggest U.S. bank plans to reduce headcount by as many as 19,000 people in its mortgage and community banking businesses through 2014 as Chief Executive Officer Jamie Dimon cuts expenses.
AMC Networks Inc. slumped 3.6 percent to $56. The cable- network company that airs “Mad Men,” “Breaking Bad” and “The Walking Dead” plunged after fourth-quarter earnings missed analysts’ estimates.
Best Buy Co. fell 3.2 percent to $16.46. The biggest consumer electronics retailer cut 400 jobs at its headquarters as Chief Executive Officer Hubert Joly works to reduce costs. Joly, who took charge in September, is working on a plan announced last year to reduce costs by $750 million as the retailer works to compete with rivals such as Amazon.com Inc.
Tyson Foods Inc. dropped 3.7 percent to $22.40 as the largest U.S. meat processor said margins narrowed in its beef and pork units.
“Margins have been compressed throughout the past month as the value of beef has fallen more than the price of cattle,” James Lochner, chief operating officer of Springdale, Arkansas- based Tyson, said at the Goldman Sachs 17th Annual Agribusiness Conference today.
Retail sales are rising fast enough to indicate the effects of tax-law changes and gasoline-price increases on consumer spending will be fleeting, according to Jonathan Golub, UBS AG’s chief U.S. equity strategist. Last month’s 4.4 percent sales increase from a year earlier almost matched the average 4.6 percent pace for the previous 20 years. The comparison is based on figures compiled by the Commerce Department.
“The general trend appears to be quite healthy” even though the end of a payroll-tax break, a delay in income-tax refunds and higher gas prices are weighing on consumers, Golub wrote yesterday in a report.
Golub favors makers of food, beverages and other staples, as well as companies most dependent on consumers’ discretionary spending. His view ran counter to a recommendation yesterday by David Bianco, a strategist at Deutsche Bank AG. Both strategists are based in New York.
Bianco reaffirmed “underweight” ratings on staples companies and retailers in a report, citing a “continuing struggle of low- to middle-income households to make ends meet.” His call means the two groups ought to be a smaller percentage of investors’ holdings than their weight in the Standard & Poor’s 500 Index would suggest.
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