U.S. Stocks Rally on Economic Data, Prospects for Larger European Bailout
U.S. stocks rallied, sending the Standard & Poor’s 500 Index to the biggest advance in three months, amid improving global economic data and on investor speculation of a larger European financial rescue.
Schlumberger Ltd. and Dow Chemical Co. climbed more than 3.9 percent as commodity prices gained. United Technologies Corp. and General Electric Co. rose at least 3 percent as Deutsche Bank AG said they may benefit from Airbus SAS’s plan to develop A320 aircrafts with new engines. Motorola Inc. jumped 4.5 percent after detailing plans to split into two companies in January. Microsoft Corp. increased 3.1 percent after forecasting 2011 may be “biggest year ever” for its Xbox division.
The S&P 500 added 2.2 percent to 1,206.07 at 4 p.m. in New York. Today’s gain followed rallies of 3 percent on Sept. 1 and 2.2 percent on Aug. 2, meaning the three biggest advances since July occurred on the first trading day of a month, Bloomberg data show. The Dow Jones Industrial Average rose 249.76 points, or 2.3 percent, to 11,255.78.
“The recovery is unfolding,” said John Praveen, the Newark, New Jersey-based chief investment strategist at Prudential International Investments Advisers LLC, which oversees $690 billion. “The quality of the economic data has been improving. There’s a strong bid for commodities as China is growing at a strong pace. There’s some easing of concerns about Europe. Those are all catalysts for a stock rally.”
The Dow average has rallied in December more than in any other month over the last century, according to data compiled by Bespoke Investment Group. On average, the 30-stock gauge has risen 1.3 percent in the month during the past 100 years, while gaining 1.5 percent and 1.7 percent over the last 50 and 20 years, respectively, the data show.
U.S. stocks followed Asian and European stocks higher earlier after China’s logistics federation reported that manufacturing grew at a faster pace for a fourth straight month in November. Europe’s manufacturing industries expanded at the fastest pace in four months in November, Markit Economics said.
Equities extended gains after an ADP Employer Services report showed that employment increased by 93,000, the most since November 2007, after a revised 82,000 rise in October that was almost double the initial estimate. The median projection of economists in a Bloomberg survey called for a 70,000 gain last month. The data bolstered optimism in the job market two days before the government’s employment report.
“It’s a relief rally,” said Burt White, who helps oversee $284 billion as chief investment officer at LPL Financial Corp. in Boston. “The ADP number bodes well for the jobs report we’re getting on Friday. There’s strength out of China, more clarity coming out of Europe. We see a reacceleration from the soft spot we were at earlier this year.”
Another report showed that U.S. manufacturing expanded for a 16th consecutive month in November. The Institute for Supply Management’s factory index was little changed at 56.6 from 56.9 in October. The figure compared with a median economist estimate of 56.5 in a Bloomberg News survey.
The Fed’s report on regional activity, known as the Beige Book, said the economy gained strength across much of the U.S. as hiring improved, manufacturing expanded and retailers anticipated a stronger holiday shopping season. The anecdotal information will help policy makers frame the discussion of the economy when they next meet on Dec. 14.
The Morgan Stanley Cyclical Index of economically sensitive stocks rose 3.1 percent, the most in three months, as all 30 of its companies rallied. Caterpillar Inc., the world’s largest maker of construction and mining equipment, gained 3.4 percent to $87.45. FedEx Corp., the second-largest U.S. package-shipping company, jumped 3.2 percent to $93.99.
Indexes of energy and raw-materials producers in the S&P 500 rallied at least 2.7 percent as the U.S. dollar fell, sending commodities prices higher. The Thomson Reuters/CRB Commodity Index of 19 raw materials advanced 2.5 percent as the Dollar Index, which gauges the currency against six major counterparts, slumped 0.6 percent to snap a three-day rally.
Schlumberger, the largest oilfield services provider, added 4.5 percent to $80.85. Dow Chemical, the world’s second-biggest chemical company, climbed 4 percent to $32.42.
Deere & Co. gained 1.9 percent to $76.14. The world’s largest farm-equipment maker increased its dividend by 5 cents, or 17 percent, to 35 cents a share. That beat the 30-cent dividend projection from Bloomberg.
Stocks extended gains today as Reuters, citing an unnamed official, reported that the U.S. would be ready to support an extension of the European Financial Stability Facility, the fund used to bail out Greece and Ireland, by having the International Monetary Fund contribute more money. An official in Washington later told Bloomberg News that the U.S. isn’t discussing an extra commitment of money from the IMF.
The S&P 500 dropped 0.6 percent yesterday to extend its retreat from a two-year high on Nov. 5 to 3.7 percent, as concern mounted that Europe’s government debt crisis will worsen and as Google Inc. faced a European antitrust probe. The index is still up 18 percent from this year’s low in July as companies reported higher-than-estimated earnings and the Federal Reserve increased its program of asset purchases to stimulate growth.
United Technologies rose 4 percent to $78.26. Airbus’s plans to develop new versions of the A320 series of aircraft with more fuel-efficient engines is “positive” for the maker of Pratt & Whitney jet engines and General Electric, Deutsche Bank said in a note. GE added 3 percent to $16.30.
Motorola rose 4.5 percent to $8.01. The U.S. maker of mobile phones and two-way radios that plans to split in two said it will complete the move on Jan. 4, issuing new shares in the two companies to current stockholders.
Microsoft, the world’s largest software maker, rallied 3.1 percent to $26.04. Dennis Durkin, Xbox’s chief operating officer, forecast a 5-to10-year growth spurt in games and said 2011 could be the “biggest year ever.” He made his comments during a Credit Suisse Group AG conference today.
A measure of 12 homebuilders in S&P indexes rallied 4 percent as all of its companies gained. Construction spending in the U.S. unexpectedly rose in October. The 0.7 percent increase matched the previous month’s gain and brought spending to $802.3 billion, Commerce Department figures showed. The median estimate of economists in a Bloomberg survey was a 0.3 percent drop.
Pulte Group Inc., the largest U.S. homebuilder by revenue, rose 4.5 percent to $6.54. D.R. Horton Inc., the second-largest builder, advanced 4.9 percent to $10.53.
Goldman Boosts Forecasts
Economists at Goldman Sachs Group Inc., the most profitable Wall Street firm, increased their forecasts for U.S. and global growth in 2011, predicted an acceleration in 2012 and recommended investors buy banks. The U.S. economy will grow at a 2.7 percent rate next year, up from a previous forecast of 2 percent, and 3.6 percent in 2012. The global economy will grow 4.6 percent in 2011 and 4.8 percent in 2012.
They recommended U.S. bank stocks, junk bonds, commodities, Japanese stocks and China’s currency. They are the first of the firm’s “top trades” for 2011, they said. The forecasts are a departure from the pessimism that characterized Goldman Sachs’ projections since 2006.
“You really have had very strong economic data coming from the U.S. since mid-November,” said David Kovacs, chief investment officer for quantitative strategies at Turner Investment Partners Inc. in Berwyn, Pennsylvania, which manages $18 billion. “The market is still quite reasonably priced, so the general trend should be going higher.”
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