U.S. Stocks Advance as Retail Sales Increase Offsets Surge in Bond Yields

U.S. stocks rose, rebounding in the final minutes of trading, as data showing retail sales beat estimates helped equities withstand a surge in Treasury yields.

AT&T Inc., Kraft Foods Inc. and Verizon Communications Inc. rallied at least 1.6 percent to lead gains in the Dow Jones Industrial Average. American International Group Inc. jumped 6.7 percent after Chairman Steve Miller told Bloomberg Television that he’s encouraged about the insurer’s prospects for regaining independence from the U.S. government. Banks retreated.

The Standard & Poor’s 500 Index advanced 0.1 percent to 1,241.59 at 4 p.m. in New York, erasing a 0.2 percent loss in the last 20 minutes of the day. The Dow gained 47.98 points, or 0.4 percent, to 11,476.54. Yields on 10-year Treasuries surged as much as 0.22 percentage point to 3.49 percent after the Federal Reserve said the U.S. recovery is continuing and maintained a $600 billion program of debt purchases.

“It was the appropriate decision,” said Bruce McCain, who oversees $25 billion as chief investment strategist at the private-banking unit of KeyCorp in Cleveland. “They need to keep the program. They cannot back off. It wouldn’t be the proper answer, given the moderate pace of growth that we’re seeing. I do see room for the stock rally to go further into next year.”

Longest Since July

The S&P 500 climbed for the sixth straight day, the longest winning streak since July. The index has risen 19 percent since Fed Chairman Ben S. Bernanke indicated on Aug. 27 that he was considering pumping more cash into financial markets through bond purchases. The Fed announced after its November meeting that it would buy $600 billion in Treasuries.

U.S. equity benchmarks pared gains after the Fed statement as Treasuries slid, sending 10-year yields to the highest level since May, amid concern the increase in bond yields will lead to higher borrowing costs. Ten-year Treasury yields increased as much as 0.22 percentage point to 3.49 percent.

“The U.S. Treasury market is getting hammered,” said Peter Boockvar, equity strategist at Miller Tabak & Co. in New York. “For the first time in this multiyear experiment on the part of the Fed, the bond market has taken over and has pushed back against the Fed’s goal of keeping interest rates low. Stock investors have to learn to start paying attention to it.”

Stock futures gained in premarket trading after Commerce Department figures showed that purchases at U.S. retailers increased 0.8 percent, following a 1.7 percent gain in October. The median forecast of economists surveyed by Bloomberg News called for a 0.6 percent rise. Separately, the Labor Department said that the producer price index increased 0.8 percent from the prior month. Excluding more volatile food and energy costs, it was the smallest year-over-year gain in five months at 1.2 percent.

‘Improving’

“The economic environment is improving,” said Stephen Wood, the New York-based chief market strategist for Russell Investments, which manages $149.3 billion. “However, it’s too early for the Federal Reserve to change anything in terms of policy. Follow the Fed or fight the Fed at your own peril.”

AT&T, the largest U.S. phone company, advanced 2 percent to $29.34. Kraft, the world’s second-biggest food company, rallied 1.7 percent to $31.39. Verizon, the second-largest U.S. phone company, rose 1.6 percent to $34.67.

AIG had the biggest gain in the S&P 500, jumping 6.7 percent to $51.77. Chairman Steve Miller said the success of the U.S. selling stakes in Citigroup Inc. and General Motors Co. signals the Treasury will be able to divest its AIG holdings.

Converting Stake

The Treasury Department, which invested more than $49 billion to prop up AIG, plans to convert its preferred stake into common stock by March 15 and will sell the shares to private investors. The department sold $10.5 billion of Citigroup shares last week and received $13.6 billion from last month’s offering of General Motors shares.

“Those are good precedents, which give increased confidence,” Miller said today in an interview on Bloomberg Television’s “InBusiness With Margaret Brennan.”

Amgen Inc. jumped 4.9 percent to $56.76. The biotechnology company’s denosumab delayed the spread of prostate cancer to men’s bones in a study that may boost sales of the drug by $2 billion a year.

Financials had the biggest decline in the S&P 500 among 10 industries, slumping 0.9 percent.

JPMorgan Chase & Co. retreated 1.7 percent to $40.79. Citigroup Inc. dropped 2.5 percent to $4.69.

Huntington Bancshares Inc. slumped 5.4 percent to $6.30. The Columbus, Ohio-based bank said it priced an offering of about 146 million shares of its common stock at $6.30 a share.

Best Buy Plunges

Best Buy Co. plunged 15 percent, the most since August 2002, to $35.52. The world’s largest consumer-electronics retailer slashed its annual profit forecast amid increasing competition from Wal-Mart Stores Inc. and Target Corp.

Wal-Mart rose 0.4 percent to $54.45, and Target climbed 0.5 percent to $59.08.

Bearish option trades on the SPDR S&P 500 ETF Trust rose to the highest in a month after a single bet that the exchange- traded fund tracking the U.S. stock benchmark index will slide this week.

Volume for puts to sell the ETF exceeded 1.5 million contracts as of 4 p.m., with about a fifth of put volume concentrated in a single “butterfly” trade that profits if the fund loses about 1.5 percent from yesterday’s close by the end of the week and makes the most if it drops at least 3.7 percent. Volume for puts was 1.5 times the four-week average and double the number of calls to buy.

“It’s a cheap bet on the SPY trading down at some point before week’s end,” said Etai Friedman, head derivatives trader at MKM Partners LP in Stamford, Connecticut, referring to the ETF by its ticker symbol. The trade cost about $2 million to enter and has a potential payoff of as much as $22 million, Friedman said. “It’s a notably large trade but doesn’t have a lot of risk.”

To contact the reporter on this story: Rita Nazareth in Sao Paulo at rnazareth@bloomberg.net.

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net.

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