U.S. Stocks Advance as Consumer Confidence Exceeds Forecasts

U.S. stocks rose, preventing the biggest weekly drop in the Standard & Poor’s 500 Index since August, as confidence among American consumers beat forecasts and climbed to the highest level in three years.

Boeing Co. had the biggest rally in more than a month, rising 2.2 percent, after defeating European Aeronautic, Defence & Space Co. for a $35 billion Air Force tanker program. Intel Corp. gained the most in the Dow Jones Industrial Average, adding 2.7 percent, as Longbow Research advised buying the shares. Salesforce.com Inc., the largest supplier of customer- management software, jumped 3.4 percent after forecasting revenues that exceeded analysts’ projections.

The S&P 500 rose 1.1 percent to 1,319.88 at 4 p.m. in New York. The benchmark gauge fell 1.7 percent this week, the most since November. The Dow advanced 61.95 points, or 0.5 percent, to 12,130.45 today. The Chicago Board Options Exchange Volatility Index, which measures the cost of using options as insurance against declines in the S&P 500, tumbled 9.9 percent, the most since November, to 19.22.

“We’re in a sustainable recovery,” said Thomas Nyheim, a Greenville, Delaware-based money manager for Christiana Trust, which oversees $7 billion. Consumer confidence beat estimates. Corporate earnings have been pretty good. We’re not looking for any pullback in economic growth. That should hold stocks up.”

Middle East Turmoil

The S&P 500 had fallen the previous three days amid growing turmoil in the Middle East and North Africa. The index has risen 5 percent in 2011, extending last year’s 13 percent rally, as government stimulus measures and improving profits bolstered investor confidence. Per-share profit at 71 percent of the 456 companies in the S&P 500 that have reported results since Jan. 10 beat analyst estimates, according to data compiled by Bloomberg.

Stocks extended gains today after the Thomson Reuters/University of Michigan final index of consumer sentiment for February climbed to 77.5 from 74.2 the prior month. Economists projected an increase to 75.5, according to the median of 59 forecasts in a Bloomberg News survey.

Earlier today, the Commerce Department said that the U.S. economy grew at a 2.8 percent annual rate in the fourth quarter, slower than previously calculated and less than forecast as state and local governments made deeper cuts in spending. The revised increase in gross domestic product compares with a 3.2 percent estimate issued last month and a 2.6 percent gain in the third quarter.

Leaner Stockpiles

The economy, excluding inventories, grew at a 6.7 percent pace, the most since 1998. Slower inventory accumulation shaved 3.7 points from growth, the most since 1988. Inventories last quarter were stocked at a $7.1 billion pace, compared with an originally reported $7.2 billion rate and down from a $121.4 billion rate in the third quarter. Leaner stockpiles may help set the stage for faster growth in the first half of this year.

“If you dive into the GDP report, you’ll see that the seeds for sustainable growth are there,” said Mark Bronzo, who helps manage over $25 billion at Irvington, New York-based Security Global Investors. “Inventories went down even further. That creates the chance that they will have to be rebuilt, so that growth will be even stronger. On top of that, a lot of names are rebounding after getting hit pretty hard this week on the Middle East situation.”

Crude oil futures in New York surged to a 29-month high yesterday amid estimates that Libya’s output was cut by as much as two-thirds. Oil retreated below $100 a barrel in New York after Saudi Arabia, the U.S. and the International Energy Agency said they can compensate for any Libyan supply disruption.

‘Relief Rally’

“We’re getting a relief rally,” said Paul Zemsky, the New York-based head of asset allocation for ING Investment Management, which oversees $550 billion. “There’s pressure coming off the Middle East. On the GDP report, the headline number was disappointing. However, companies can improve their numbers at that pace of growth. In addition, the moderate economic acceleration tells me that the Fed will be on hold.”

The benchmark gauge for U.S. stocks has rallied 26 percent since Federal Reserve Chairman Ben S. Bernanke suggested on Aug. 27 that he was prepared to act to spur economic growth.

Boeing rose 2.2 percent to $72.30. The sole supplier of aerial refueling tankers to the U.S. Air Force since 1948 won a $35 billion program to build 179 new tankers, the Pentagon said yesterday. It was the Chicago-based company’s third try at the contract since Congress and the Air Force first proposed the tanker replacement program in late 2001.

Corporate Demand

Intel added 2.7 percent to $21.86. The world’s largest chipmaker was rated “buy” in new coverage by Longbow Research’s analyst Joanne Feeney, who said corporate demand and new products will help propel Intel’s sales and earnings growth into next year.

Salesforce.com rallied 3.4 percent to $138.83. Revenue will be $480 million to $482 million in the fiscal first quarter, which ends in April, San Francisco-based Salesforce said. Excluding some costs, profit will be 26 cents or 27 cents a share. Analysts had projected sales of $471.5 million and profit of 32 cents, the average of estimates compiled by Bloomberg.

American International Group Inc. slumped 4.7 percent to $38.54, the lowest price since Dec. 8. The bailed-out insurer said it faces increased risk of losses on its $46.6 billion municipal bond portfolio and that defaults could pressure the company’s liquidity.

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

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

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