U.S. Stocks Advance Amid Tax-Cut Extension Optimism, AIG's Repayment Plan
U.S. stocks rose, sending the Standard & Poor’s 500 Index to a two-year high, as a potential extension of tax cuts boosted shares and American International Group Inc. said it will repay its Federal Reserve credit line.
Regions Financial Corp. and Zions Bancorporation rallied at least 5.3 percent on speculation that lending will become more profitable as bond yields rise. Morgan Stanley added 3.2 percent after getting approval to sell its stake in China International Capital Corp. Lincoln National Corp. and other life insurers gained after Standard & Poor’s raised the industry’s outlook. AIG fell 3.9 percent before shares were halted for the announcement about the repayment plan.
The S&P 500 rose 0.4 percent to 1,228.28 as of 4 p.m. in New York, its highest close since Sept. 19, 2008. The Dow Jones Industrial Average gained 13.32 points, or 0.1 percent, to 11,372.48. The 10-year Treasury yield climbed 11 basis points to a six-month high of 3.24 percent.
“It’s hard to argue against the positive economic momentum,” said Mark Bronzo, who helps manage $21 billion at Irvington, New York-based Security Global Investors. “We have the tax-cut extension, easing of monetary policy. Although there’s concern about China tightening, there’s also a perception that it will be done in gradual steps. That creates a good environment for riskier assets.”
‘Road to Recovery’
Since reaching its previous two-year high on Nov. 5, the S&P 500 lost as much as 3.9 percent amid speculation that China will raise interest rates to tame inflation and on concern that the sovereign-debt crisis will spread in Europe. The benchmark gauge for U.S. equities almost wiped out that decline yesterday after President Barack Obama said he’ll agree to a two-year extension on all Bush-era tax cuts in a compromise deal he called “an essential step on the road to recovery.”
Banks had the biggest gain in the S&P 500 among 24 industries, rallying 3.4 percent.
Regional banks advanced as rising yields on U.S. Treasury securities maturing in 10 years or more indicated that lending will become more profitable, Brian Klock, an analyst at Keefe Bruyette & Woods Inc. in New York, said in an e-mail.
Regions Financial rose 5.3 percent to $6.33. Zions Bancorporation gained 5.5 percent to $22.45.
Morgan Stanley advanced 3.2 percent to $26.47. The sixth- largest U.S. bank by assets said it has received all required regulatory approvals for the sale of its 34.3 percent holding in China International Capital Corp., clearing the way for the stake’s sale to four investors. Morgan Stanley expects to realize a pretax gain of about $700 million upon consummation of the transaction, which is expected to close before the end of 2010, the New York-based bank said today in a statement.
Life insurers gained after S&P lifted the industry’s outlook to “stable” from “negative,” saying the companies may sidestep downgrades next year following stock and bond sales. Lincoln National advanced 7.5 percent to $27.24. Hartford Financial Services Group Inc. added 3.5 percent to $25. MetLife Inc. rose 3.9 percent to $42.79.
Corning Inc. increased 1.2 percent to $18.86. The world’s biggest maker of glass for flat-panel televisions said fourth- quarter LCD glass market volumes are now expected to be consistent with those from the third quarter. The company had previously forecast volumes to be flat to down slightly.
Gannett Co. increased 3 percent to $15.78 after the newspaper publisher said it expects fourth-quarter earnings to be at the “high end” of its forecast of between 72 cents to 82 cents a share.
S&P 500 Record
The S&P 500 may rise at least 28 percent through next year to a record as corporate profits and the economy improve, according to Byron Wien, the vice chairman of Blackstone Advisory Services.
In January, Wien wrote in his annual “Ten Surprises” list of predictions that the S&P 500 would finish 2010 unchanged at 1,115.10. It has gained 9.7 percent this year through yesterday. The index will extend the advance into 2011 and may reach its all-time high of 1,565.15 from October 2007, Wien said.
That “isn’t crazy,” Wien, 77, said in a telephone interview from New York. “It’s certainly possible. Things are improving. You’ll have earnings over $90 a share for 2011. As people become comfortable with the fact that calamity is not in store, they will be willing to take more risk.”
The MSCI Emerging Markets Index dropped 1.4 percent after China’s statistics bureau brought forward the release of November economic data on inflation, retail sales, industrial output and fixed-asset investments by two days to Dec. 11, heightening speculation that the People’s Bank of China will lift interest rates this weekend.
“It’s a mixed bag,” said Cliff Remily, a money manager at Santa Fe, New Mexico-based Thornburg Investment Management, which oversees $72 billion. “The tax-cut deal is good news for the economy. However, investors are reacting to short-term news. People are concerned about the fact that China needs to cool down. In my view, there won’t be a dramatic slowdown, but investors will be reacting to that concern.”
AIG fell 3.9 percent to $42.22 before its shares were halted. The insurer said it struck a deal to repay its Federal Reserve credit line as AIG seeks independence from the government. AIG will use proceeds from the sales of two non-U.S. life insurance units, the New York-based company said in a regulatory filing announcing the agreement with regulators including the U.S. Treasury Department.
Youku.com Inc. surged in the biggest gain for a U.S. initial public offering in five years and E-Commerce China Dangdang Inc. almost doubled in its debut, the latest sign of booming demand for Chinese Internet companies.
Energy and raw-materials shares fell. Gold and silver prices tumbled the most in three weeks, while oil declined after a government report showed an unexpected increase in supplies of gasoline and distillate fuels.
Occidental Petroleum Corp. fell 1.6 percent to $90.89, while Newmont Mining Corp. slumped 2.7 percent to $60.83.
McDonald’s Corp. dropped 2 percent to $78.74, the biggest decline in the Dow average. The world’s largest restaurant chain said U.S. comparable-store sales climbed 4.9 percent. The estimate was 5 percent.
To contact the editor responsible for this story: Nick Baker at firstname.lastname@example.org.