Oct. 22 (Bloomberg) -- U.S. stocks advanced for the first time in three days as better-than-estimated earnings at companies from Travelers Cos. to McDonald’s Corp. boosted speculation that the worst recession since the 1930s is over. Travelers and McDonald’s climbed at least 2.3 percent to help lead the Dow Jones Industrial Average higher, while New York Times Co. and PNC Financial Services Group Inc. also rallied on better-than-estimated results. American Express Co. jumped 2.3 percent after Moody’s Investors Service said credit- card defaults declined. “I do feel optimistic that profit growth is real and will spur a broader recovery,” said Jeffrey Davis, who oversees $4.6 billion as chief investment officer at Lee Munder Capital Group in Boston. “You have a ton of liquidity, economic fundamentals are in place and that should be supportive for stocks.” The S&P 500 increased 1 percent to 1,091.9 at 3:16 p.m. in New York. The Dow added 129.53 points, or 1.3 percent, to 10,078.89. The Nasdaq Composite Index rose 0.6 percent to 2,162.6 as declines in EBay Inc. and Amgen Inc. limited gains. Benchmark indexes retreated in early trading after a Labor Department report showed initial applications for jobless benefits rose to 531,000 last week, topping the average analyst estimate by 16,000. A separate report showed home prices unexpectedly fell, while the index of leading economic indicators advanced for a sixth straight month. ‘Forced Move’ The S&P 500 is trading at its highest valuation in five years after climbing more than 61 percent from a 12-year low in March as the government lent, spent or guaranteed $11.6 trillion to combat the recession. The index is valued at more than 20 times the reported operating profits of its companies, twice its price-to-earnings ratio on March 6. “We’re setting up for a really good market in November and December, a year-end rally where you’re getting a forced move into the market by those that have lagged behind,” Steve Leuthold, whose Leuthold Core Investment Fund beat 95 percent of rivals in the past five years, told Bloomberg Television. Stocks will benefit from “capitulation on the part of people who have been cautious,” he said. Leuthold, who manages $4 billion, reiterated his prediction from an October 1 interview that the S&P 500 will gain through year-end and may rise to 1,350 in 2010 as profits improve. Dow Leaders Travelers rallied 6.8 percent to $51.29 after the insurer boosted its dividend and said quarterly net income quadrupled to $935 million. Operating income, which excludes some investment results, was $1.61 a share, beating the $1.29 average estimate of analysts in a survey. Travelers benefited from a decrease in storms after hurricanes Ike, Gustav and Dolly contributed to $1 billion in catastrophe expenses in the year-earlier quarter. McDonald’s rose 2.3 percent to $59.64. Earnings were $1.15 a share. The average analyst estimate in a Bloomberg survey was $1.11 a share. Sales at restaurants open at least 13 months rose 3.8 percent, the Oak Brook, Illinois-based company said in a statement. Analysts projected a rise of 2.9 percent. AT&T added 1.2 percent to $26.24. Third-quarter profit excluding some items was 53 cents a share, beating the average analyst estimate by 3 cents. New York Times Co. had the biggest gain in the S&P 500, surging 21 percent to $10.63. The publisher said third-quarter profit excluding some items rose to 16 cents a share after cutting wages and production costs. Analysts predicted a loss of 1 cent, on average. A gauge of 79 banks, insurers and investment firms in the S&P 500 rose 2.3 percent for the biggest gain among 10 in industries. Financials Jump PNC Financial Services, Fifth Third Bancorp and SunTrust Banks Inc. said lending was becoming more profitable as they paid less on customers’ deposits and other borrowing costs declined. PNC surged 14 percent to $51.46 after the Pittsburgh-based bank said profit more than doubled in the third quarter and its net interest margin, the difference between what it charges for loans and pays on deposits, widened to 3.76 percent from 3.60 percent in the second quarter. Fifth Third added 5.9 percent to $10.71, while SunTrust advanced 6 percent to $22.01. Financial shares extended gains after Treasury Secretary Timothy Geithner said the goal is for bailed-out firms to repay the government “as soon as possible.” ‘Road to Repair’ “We’re on the road to repair,” said Art Hogan, the New York-based chief market analyst at Jefferies & Co. “Geithner’s comments are very positive for the perception of investors about the financial industry. That’s giving support for banks and the overall market rally.” American Express rose 2.3 percent to $35.90. U.S. credit- card defaults fell in September from a record high as five of the nation’s six biggest card lenders posted monthly declines, Moody’s said. Profits have topped estimates at 79 percent of the companies in the S&P 500 that have released results, according to Bloomberg data. That would mark the highest proportion in data going back to 1993. Crude oil for December delivery fell 0.2 percent to $81.20 a barrel. Futures touched $82 yesterday, the highest since Oct. 14, 2008. EBay sank 4.7 percent to $23.86. The owner of the most- visited e-commerce Web site forecast fourth-quarter profit that missed some analysts’ estimates after shifting into faster growing, less-lucrative businesses. Amgen, the world’s largest biotechnology company, dropped 4.2 percent to $56.90 on lower third-quarter sales. Europe, Asia Drop Stocks in Europe and Asia retreated on speculation that China may consider withdrawing stimulus measures after economic growth accelerated. Europe’s Dow Jones Stoxx 600 Index slid 1.2 percent, while the MSCI Asia-Pacific Index lost 1.1 percent. China’s economy expanded at the fastest pace in a year as stimulus spending and record lending growth helped the nation lead the world out of recession. The acceleration in growth spurred concerns policy makers may consider withdrawing fiscal and monetary measures in coming quarters. Gross domestic product rose 8.9 percent in the third quarter from a year earlier. U.S. stocks dropped in the final hour of trading yesterday after analyst Dick Bove downgraded Wells Fargo & Co., erasing a rally spurred by better-than-estimated results at Morgan Stanley and Yahoo! Inc. Treasuries fell for a second day, sending the yield on 10- year notes up four basis points to 3.43 percent, as traders speculated the U.S. will say a record amount of debt will be auctioned next week. To contact the reporter on this story: Rita Nazareth in New York at rnazar...@bloomberg.net
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