Market sentiment was aided Tuesday by a larger than expected increase in existing home sales and a higher forecast from Jabil Circuit
By Rita Nazareth
Dec. 22 (Bloomberg) -- U.S. stocks rose, sending the Standard & Poor's 500 Index above its highest close in almost 15 months, after home sales topped forecasts and Jabil Circuit Inc.'s (JBL) profit projection triggered gains in technology shares.
KB Home led an advance in all 12 companies in an index of homebuilders as the National Association of Realtors said purchases of existing homes climbed 7.4 percent to a 6.54 million annual rate, the highest in more than two years. Jabil Circuit rallied 14 percent. American International Group Inc. (AIG) surged as people familiar with the matter said it canceled an initial public offering of its Chartis property-casualty unit.
The S&P 500 added 0.4 percent to 1,118.03 at 4:05 p.m. in New York. The Dow Jones Industrial Average gained 50.79 points, 0.5 percent, to 10,464.93. The VIX, the benchmark index for U.S. stock options, slid 4.6 percent to 19.55, its first drop below 20 since August 2008, as investors paid less for insurance against declines in the S&P 500.
"The recovery in the housing market is an important step for investors' confidence given the fact that the industry was at the forefront of the credit meltdown," said Jeffrey Kleintop, who helps oversee about $278 billion as chief market strategist at LPL Financial in Boston. "It's great news."
Equities rallied even after the Commerce Department said the economy grew at a slower pace in the third quarter than anticipated. The 2.2 percent increase in gross domestic product from July through September compares with a 2.8 percent gain previously reported.
50 Percent Retracement
The S&P 500 needs to top 1,120.84 to recover half the plunge that followed its October 2007 record of 1,565.15. The index rose to as high as 1,120.27 today. For investors who make predictions using patterns in price graphs, a so-called 50 percent retracement would suggest that forecasts that the recession is ending are correct and equity gains will last.
The S&P 500 has climbed 24 percent this year, poised for the biggest annual gain since 2003. Analysts expect earnings to grow 24 percent next year, following a 12 percent decline in 2009, according to estimates compiled by Bloomberg. First- quarter 2010 profits are forecast to rise 28 percent on average.
An S&P gauge of homebuilders gained 3.9 percent as the home sales report signaled that the housing market is gaining strength along with the broader economy. KB Home advanced 7 percent to $13.80. Lennar Corp. (LEN) gained 3.2 percent to $13.27. Pulte Homes Inc. (PHM) added 4.7 percent to $9.86.
"We have pent-up demand in this country," said Hank Smith, who helps oversee $6 billion as chief investment officer of Haverford Trust Co. in Radnor, Pennsylvania. "Both home sales data and GDP growth are signals that the recovery is firmly in place."
Jabil Circuit rose 14 percent to a 16-month high of $17.07, for the biggest gain in the S&P 500. The Florida electronics manufacturer's forecast for per-share profit of 20 cents to 32 cents exceeded the 19-cent average estimate of 12 analysts surveyed by Bloomberg.
AIG, the insurer rescued by the U.S. government, surged after halting preparations for an initial public offering of its Chartis property-casualty unit, according to people familiar with the matter.
Robert Benmosche, who started as AIG's chief executive officer in August, told employees that he considers the business a core holding, according to two people who declined to be identified because an announcement hasn't been made. Mark Herr, a spokesman for AIG and John Jones of Chartis declined to comment. AIG shares increased 10 percent to $30.94.
To contact the reporter on this story: Rita Nazareth in New York at firstname.lastname@example.org.