Monday, May 18, 2009

U.S. Stocks Gain as Bank of America, Lowe’s Shares Advance

U.S. stocks rose, helping the Standard & Poor’s 500 Index rebound from its worst week since March, as analysts recommended Bank of America Corp. and Lowe’s Cos. beat earnings projections. European government bonds and oil gained.

Bank of America climbed 12 percent after Goldman Sachs Group Inc. put the lender on its “conviction buy” list. Goldman Sachs increased 3.9 percent as Citigroup Inc. boosted the company’s share-price and earnings estimates. Financial stocks led the advance after the cost of borrowing in dollars between lenders dropped the most in two months as credit markets thaw. Lowe’s, the home-improvement retailer, added 6.2 percent.

The S&P 500 jumped 1.7 percent to 898.27 at 12:03 p.m. in New York. The Dow Jones Industrial Average added 148.62 points, or 1.8 percent, to 8,417.26. Europe’s Dow Jones Stoxx 600 Index rallied 2.4 percent, while the MSCI Asia Pacific Index lost 0.4 percent. India’s benchmark index rose a record 17 percent after the prime minister’s party won nationwide elections.

“It’s a more constructive market” for stocks, said Hank Smith, who helps oversee $5 billion as chief investment officer of Haverford Trust Co. in Radnor, Pennsylvania. “What we saw last week was only a necessary pause, not the beginning of a retracement. The worst of the economy is behind us and it’s hard to see earnings getting any worse from here.”

The S&P 500 fell 5 percent last week, erasing its 2009 gain, after the index reached the priciest level relative to earnings in seven months, companies from Ford Motor Co. to U.S. Bancorp sold shares to raise capital and General Motors Corp. said bankruptcy is probable.

37% Surge

Between March 9 and May 8, the S&P 500 surged 37 percent in the steepest two-month advance since the 1930s on signs the global recession is easing. Still, U.S. stocks are 55 percent cheaper than shares of European companies just as the price of options to protect against losses in Europe climbs. The gap in valuations is the widest since 2003, Bloomberg data show.

While profit shrank 37 percent from a year earlier at the 445 companies in the S&P 500 that reported quarterly results since April 7, Bloomberg data show they beat analysts’ estimates by an average of 9.3 percent.

Lowe’s rose 6.2 percent to $19.60. The retailer reported a smaller decline in first-quarter earnings than analysts estimated as it reined in costs amid the recession. Profit of 32 cents a share beat the average analyst estimate by 25 percent, according to data compiled by Bloomberg.

Bigger rival Home Depot gained 5 percent to $25.62.

‘Solid’ Quarter

Bank of America helped lead a gauge of financial shares up 4.4 percent for the biggest gain in the S&P 500 among 10 industry groups. The largest U.S. lender by assets rose after Goldman Sachs cited its progress on raising capital and another “solid” quarter for the mortgage and capital markets businesses. Bank of America gained 12 percent to $11.96.

Goldman Sachs added 3.9 percent to $139.65. Citigroup raised the bank’s share-price estimate by 10 percent to $160, citing increased debt and equity underwriting. Citigroup also boosted Goldman Sachs’s profit estimates through 2011.

Financial shares also rose after the London interbank offered rate, or Libor, for three-month loans in dollars fell four basis points to 79 basis points today, the biggest decline since March 19, according to British Bankers’ Association data.

“Capital is now available,” said Peter Sorrentino, who helps manage $13.8 billion at Huntington Asset Management in Cincinnati. “Indicators of stress in the financial system are getting back to their historical relationship. That’s bringing investors back into the marketplace.”

Energy Rally

Energy shares in the S&P 500 rallied 2.9 percent for the second biggest advance in the S&P 500. Oil climbed 2.9 percent to $57.95 a barrel as a Nigerian military group threatened to block waterways used for energy exports and an explosion at a Sunoco Inc. refinery affected operations in the Northeast U.S.

Exxon Mobil Corp., the world’s largest company by market value, added 2 percent to $70.52. ConocoPhillips, the second- biggest U.S. oil refiner, rose 4 percent to $45.70. Macy’s Inc. advanced 6.8 percent to $12.10. The second- biggest U.S. department store chain was added to the “conviction buy list” at Goldman Sachs, which cited the retailer’s $400 million cost savings plan and prospects for improvement in sales as the economy recovers.

Lennar Corp. surged 16 percent to $10.23 for the biggest gain in the S&P 500. The fourth-biggest U.S. homebuilder by revenue was raised to “buy” from “hold” at Citigroup.

Broadcom Corp., the maker of chips for wireless headsets and TVs, advanced 3.6 percent to $21.58. Morgan Stanley upgraded U.S. semiconductor makers, saying the “fundamentals of the group are bottoming.”

‘Less Bad’

The outlook for technology spending in 2009 should be “less bad” than expected, Barclays Plc analyst Benjamin Reitzes wrote in a report. A Barclays survey of 100 chief information officers showed they expect spending to decline 2.4 percent this year, less than the average analyst estimate for a 10 percent drop, he wrote.

ICICI Bank Ltd., India’s second-largest bank, surged as the country’s benchmark stock index jumped a record 17 percent, bonds rose and the rupee gained the most in two decades after Prime Minister Manmohan Singh’s Congress Party won nationwide elections. Share trading was halted for the first time ever after the Sensitive Index, or Sensex, breached a daily limit set by the market regulator. ICICI American depository receipts gained 30 percent to $30.44 in New York.

‘Head and Shoulders Bottom’

A drop in U.S. stocks would probably be limited to 10 percent because of mutual-fund investments and the bullish “head and shoulders bottom” pattern formed by a graph of the S&P 500, according to a Bank of America Corp. analyst.

New assets being stashed in U.S. mutual funds have “improved significantly,” Mary Ann Bartels, a Bank of America analyst who studies charts to make forecasts, wrote in a report today. Money managers have seen net investments during eight of the past nine weeks, with almost $5.5 billion added in total.

“There is more room for flows to support the current rally in equities,” said Bartels, ranked second among analysts who study price charts in Institutional Investor magazine’s most recent survey.

Allegheny Energy Inc. slumped 10 percent to $23.18. The owner of utilities in four U.S. states was downgraded to “market perform” from “outperform” at Wachovia Capital Markets LLC.

AutoNation Inc. lost 3 percent to $15.49. The largest U.S. new-vehicle retailer was cut to “sell” from “neutral” at Goldman Sachs Group Inc.