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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