Friday, May 22, 2009

U.S. Stocks Rise as Sears Profit Overshadows Treasury Auction

U.S. stocks gained as unexpected profit at Sears Holdings Corp. overshadowed concern the government faces higher interest rates to finance the bailout of the financial industry, which sent Treasuries lower and weakened the dollar.

Sears jumped 17 percent. Autodesk Inc. surged 11 percent after the biggest maker of engineering-design software forecast profit that topped analysts’ estimates. Bank of America Corp. lost 4.7 percent as the U.S. government prepared to raise $162 billion next week by selling securities.

The Standard & Poor’s 500 Index added 0.3 percent to 890.92 at 12:32 p.m. in New York after losing as much as 0.5 percent. The Dow Jones Industrial Average gained 0.4 percent to 8,327.1. The 10-year Treasury note fell, pushing yields up to a six-month high of 3.43 percent. The dollar dropped beyond $1.40 against the euro for the first time in four months.

“We had good news from Sears,” said Eric Teal, who oversees $5 billion as chief investment officer at First Citizens Bank in Raleigh, North Carolina. “The market is still concerned about the money supply and the credit rating for the U.S.”

Stocks fell for the third straight session yesterday after S&P signaled Britain may lose its top credit rating and Bill Gross warned the U.S. may eventually surrender its AAA ranking. A lower credit rating would lift borrowing costs for the U.S. government, spur inflation and make it harder to curtail the banking crisis that has spurred more than $1 trillion in losses.


Treasury Secretary Timothy Geithner committed to cutting the budget deficit as concern about deteriorating U.S. creditworthiness deepened, and ascribed the sell-off in Treasuries to prospects for an economic recovery.

“It’s very important that this Congress and this president put in place policies that will bring those deficits down to a sustainable level over the medium term,” Geithner said in an interview with Bloomberg Television yesterday.

Bruce Kasman, JPMorgan Chase & Co.’s chief economist, told Bloomberg Radio today that a U.S. downgrade is “very unlikely.”

“The U.S. government has the printing press,” Kasman said. “If we’re going to have any risk here it’s not going to be that we don’t pay off our debt. It’s going to be the price we have to pay for it.”

‘Hard to Believe’

Nobel Prize-winning economist Paul Krugman said it’s “hard to believe” that the U.S. government could default on debt. “I have to say that I find the idea of a U.S. default still pretty fantastic,” Krugman, 56, said at a press briefing in Hong Kong today. While the Princeton University professor is “worried” by the level of U.S. debt, he said the government has an “enormous ability to raise taxes.”

The S&P 500 has surged 32 percent since March 9 on speculation the global recession is easing and as earnings at companies from Ford Motor Co. to Europe’s Credit Suisse Group AG topped analysts’ estimates. The Conference Board’s measure of leading economic indicators, including stock prices and manufacturing, increased in April for the first time since June.

Sears, acquired by Edward Lampert-led Kmart Holding Corp. for $12.3 billion in 2005, jumped 17 percent to $58.51 after posting a first-quarter profit, helped by cuts to advertising and payroll expenses. Excluding some items, Sears had a profit of 38 cents a share. Analysts predicted a per-share loss of 87 cents, according to the average estimate in a Bloomberg survey.

Forecast Tops Estimates

Autodesk rose 11 percent to $20.89. The company announced job cuts and forecast profit excluding some items of at least 15 cents a share in the second quarter. Analysts on average expected the company to earn 14 cents, according to a Bloomberg survey.

Archer Daniels Midland Co., the second-largest U.S. ethanol producer, jumped 6.9 percent to $27.63. The stock was raised to “hold” from “sell” at Citigroup Inc., which said a drought in Argentina will benefit American grain processors.

Potash Corp. of Saskatchewan Inc. surged 3.6 percent to $113.50. The world’s largest maker of its namesake crop nutrient and Mosaic Co., North America’s second-largest fertilizer maker, were raised to “buy” from “hold” at Citigroup Inc., which cited the outlook for grain prices.

Citigroup also upgraded Agrium Inc., North America’s third- largest fertilizer producer, to “hold” from “sell.”

Mosaic added 4.8 percent to $55.90. Agrium gained 4.4 percent to $51.02.

‘Inflation Hedges’

“Some stocks are inflation hedges,” said Peter Boockvar, the equity strategist at Miller Tabak & Co. in New York. “If you’re worried about the dollar going down, you want to buy commodities, because they will benefit in that scenario.”

The dollar declined beyond $1.40 against the euro for the first time since January on concern U.S. creditworthiness deteriorated and near-zero borrowing costs made the nation’s assets less attractive to investors. Bank of America dropped 4.7 percent to $10.87, the second-steepest decline in the Dow average.

MasterCard Inc. fell 1.2 percent to $169.72. The world’s second-largest electronic payments network will lose more than half of a $59 billion portfolio of debit-card users after JPMorgan Chase & Co. decided to shift more business to Visa Inc., two people familiar with the matter said. Inc. lost 8.5 percent to $36.29. The biggest seller of Internet-based customer management software forecast full-year revenue of $1.27 billion at most. That trailed the average analyst estimate of $1.32 billon. Citigroup cut Salesforce to “hold.”