U.S. stocks rose, sending the Standard & Poor’s 500 Index to its highest level since November, as a gauge of future economic growth topped projections and speculation grew that CIT Group Inc. will avoid bankruptcy.
Caterpillar Inc. and Alcoa Inc. rallied at least 3.7 percent as the Conference Board’s gauge of the economic outlook increased for a third straight month. CIT Group jumped 79 percent as a person briefed on the board’s deliberations said the lender has reached a financing agreement with bondholders. Hasbro Inc. and Eaton Corp. gained at least 4.2 percent on earnings that beat analysts’ estimates.
The S&P 500 added 1.1 percent to 951.13 at 4:05 p.m. in New York, its best close since Nov. 5. The Dow Jones Industrial Average rallied 104.21 points, or 1.2 percent, to 8,848.15, erasing its loss for the year and closing at a six-month high. Europe’s Dow Jones Stoxx 600 Index climbed 1.2 percent and the MSCI Asia-Pacific Index increased 1.4 percent.
“Given the general weakness of the economy and concerns over corporate profitability going into the second quarter, reports to date have been a pleasant surprise,” said Dean Gulis, part of a group that manages $2.5 billion for Loomis Sayles & Co. in Bloomfield Hills, Michigan. “This week it’s going to continue to rally. The worm has turned a little bit. People are feeling better about the economy.”
Forecast Raised
All 10 industry groups in the S&P 500 rose today, led by consumer, commodity and industrial shares. Goldman Sachs boosted its forecast for the index, saying improving earnings will spur the steepest second-half rally since 1982. The bank raised its year-end target for the S&P 500 to 1,060, a 15 percent increase from strategist David Kostin’s projection of 940 on June 30.
Earnings topped analysts’ estimates by an average of 15 percent for S&P 500 companies that reported quarterly results since July 8, according to data compiled by Bloomberg, with 35 out of 43, or 81 percent, beating estimates. Analysts forecast profits fell an average 33 percent in the second quarter and will decrease 20 percent from July through September, according to data.
The S&P 500 jumped 7 percent last week as companies from Goldman Sachs Group Inc. to Intel Corp. and Johnson & Johnson reported results that topped analysts’ estimates. The benchmark index has rebounded 41 percent from its 12-year low on March 9 amid speculation the economy is recovering.
Stocks rallied today after the index of leading U.S. indicators reinforced signs the economy may be emerging from the worst recession in five decades. The Conference Board’s gauge of the outlook for the next three to six months increased 0.7 percent, more than forecast, and climbed three straight months for the first time since 2004.
Anticipating Cash Return
U.S. equities are rallying as the market anticipates cash coming back into equities, Laszlo Birinyi president of Birinyi Associates Inc., wrote in a note to clients today.
“We would argue that the most critical element was simply that we are in a bull market,” wrote Birinyi, who helps oversee $200 million for the Westport, Connecticut firm. “When one has an oversold market with liquidity, negative investors, and obvious and articulated concerns, the market will rally.”
Alcoa, the largest U.S. aluminum producer, rose 3.7 percent to $10.60, while Freeport-McMoRan Copper & Gold Inc., the biggest publicly traded copper producer, added 2.7 percent to $57.
Metals Rally
Copper prices rose to a nine-month high in New York on speculation that metals consumption will gain as the global economy recovers. Gold, silver, zinc and tin also led a rally in metals.
CIT Group surged 55 cents to $1.25. The 101-year-old commercial-finance company seeking to ward off bankruptcy agreed to a $3 billion loan for 2.5 years from a group of its bondholders, according to people who declined to be identified because the negotiations are private. The New York-based lender needed to strike a deal with bondholders to reduce debt after the U.S. declined to give the firm a second bailout.
“Its importance for the small-business sector is dramatic,” Kevin Shacknofsky, who manages $2 billion for Alpine Mutual Funds in Purchase, New York, said of CIT. “The rest of the financial industry sees the importance of CIT and they didn’t’ let it fail. That gives the market confidence.”
Caterpillar, the world’s largest maker of construction equipment, surged 7.8 percent to $36.65 after being upgraded to “buy” from “hold” by Bank of America Corp., which cited a bottom in the construction market.
Hasbro, Eaton Jump
Hasbro Inc., the world’s second-largest toymaker, gained 4.2 percent to $26.45 after second-quarter profit rose from sales of toys based on “Transformers” and “G.I. Joe.” Net income increased to $39.3 million, or 26 cents a share, from $37.5 million, or 25 cents, a year earlier. Analysts projected profit of 23 cents a share on average.
Eaton Corp., the maker of circuit breakers and fuel pumps, jumped 8.9 percent to $48.94 after posting second-quarter earnings, excluding some items, of 23 cents a share that beat the average analyst estimate in a Bloomberg survey by 50 percent.
Human Genome Sciences Inc., the producer of gene-based therapies, more than tripled to $12.51. GlaxoSmithKline Plc and Human Genome said their experimental lupus drug reduced patients’ symptoms in a yearlong study. U.S. shares of Glaxo, the U.K.’s largest drugmaker, gained 4 percent to $37.81. CBS Corp. jumped 10 percent to $7.43 after the owner of the most-watched TV network was raised to “overweight” at Morgan Stanley, which said investors may be drawn to its local advertising business in 2010.
Wynn, Halliburton
Wynn Resorts Ltd., the casino company founded by Stephen Wynn, surged 10 percent to $39.83 for the second-best advance in the S&P 500 after CIT. Las Vegas Sands Corp. said it plans to apply for an initial public offering of shares in its Macau casinos. Wynn reported 61 percent of its revenue from Macau in the most-recent quarter, according to Bloomberg data. Las Vegas Sands jumped 15 percent to $9.86.
Halliburton Co. the world’s second-largest oilfield- services provider, gained 4.4 percent to $22.33 after posting second-quarter earnings, excluding some items, of 30 cents a share to surpass the average analyst estimate in a Bloomberg survey by 13 percent.
The cheapest valuations in at least 14 years are making energy companies too alluring to pass up for UBS AG and Guggenheim Partners LLC, even though earnings in the industry may fall 48 percent this year. Oil and gas producers in the MSCI World Index traded at $7.84 per dollar of profit this month, less than half the average of $17.10 in the gauge of developed markets and the widest gap since at least 1995, data compiled by Bloomberg show.
Bank of America, Tyson Slump
Bank of America lost 5 percent to $12.24 after FBR Capital Markets said the largest U.S. lender by assets may post further losses in the second half as the job market deteriorates. The lender was also downgraded to “in-line” from “outperform” at Fox-Pitt Kelton Cochran Caronia Waller. Tyson Foods Inc. sank 9.3 percent to $11.47. The largest meat producer was downgraded to “hold” from “buy” at Deutsche Bank and cut to “market perform” from “outperform” by BMO Capital Markets.