U.S. Stocks Advance as S&P 500 Extends Best 1Q Gain Since 1998

U.S. stocks rose, extending the biggest first-quarter rally in 13 years for the Standard & Poor’s 500 Index, as a report showing companies added more workers in March bolstered optimism about the economy.

Cephalon Inc. surged 28 percent for the biggest jump in the S&P 500 after Valeant Pharmaceuticals International Inc. (VRX) offered to buy the maker of sleep and pain drugs. Visa Inc. (V) climbed 2.8 percent on speculation that curbs on debit-card fees will be delayed or modified. AT&T Inc. (T) rallied as its chief executive officer pitched the company’s acquisition of T-Mobile USA as a way to boost network capacity and improve service.

The S&P 500 gained 0.7 percent to 1,328.26 at 4 p.m. in New York and is up 5.6 percent for the first quarter, which ends tomorrow. The Dow Jones Industrial Average increased 71.60 points, or 0.6 percent, to 12,350.61 and has rallied 6.7 percent so far this year. The Russell 2000 Index of smaller stocks rose 1.3 percent to 840.28, the highest level since October 2007.

“Given the beginning of a strong cyclical recovery in the U.S. and a tougher environment in many of these other international markets, it seems to us like a good place for investors to be,” said Connor Browne, who oversees about $5 billion as co-manager of the Thornburg Value Fund at Thornburg Investment Management Inc. in Santa Fe, New Mexico. “We’re positively inclined toward valuations and fundamentals for the U.S. market.”

First-Quarter Rally

The S&P 500 is poised to complete a third straight quarterly advance and is headed for its biggest gain in the January-March period since 1998, when the index surged 14 percent. The benchmark gauge of U.S. stocks is trading for about 13.7 times its companies’ estimated operating earnings, compared with an average multiple of 18.1 times reported profits over the last decade, data compiled by Bloomberg (SPX) show.

A report from ADP Employer Services today showed companies hired 201,000 workers in March, marking the third time in four months that the nation added more than 200,000 jobs. A Labor Department report on April 1 may show total U.S. non-farm payrolls rose 190,000 in March and the unemployment rate held at 8.9 percent, economists predicted. The jobless rate fell below 9 percent in February for the first time in 22 months.

“There’s certainly some positive expectations for the jobs numbers this Friday,” said Michael James, managing director of equity trading at Wedbush Securities Inc. in Los Angeles. “The expectation is that the U.S. economy is going to remain strong and the equity markets are going to continue higher,” he said.

Cephalon, Visa

Cephalon advanced 28 percent to $75.44 after Valeant (VRX), Canada’s biggest drug maker, offered to buy the Frazer, Pennsylvania-based company for $73 a share in cash. The offer is valued at about $5.7 billion. Valeant rose 13 percent to $50.08. Forest Laboratories Inc. (FRX), another drugmaker, climbed 4.3 percent to $32.48.

Visa, the world’s biggest payments network, gained 2.8 percent to $74.23 after Federal Reserve Chairman Ben S. Bernanke said yesterday the central bank wouldn’t meet an April 21 deadline to come up with a final rule on debit-card transaction fees. The cap, mandated by the Dodd-Frank law that overhauled the financial industry last year, must be in place by July 21. MasterCard Inc. (MA), the world’s second-biggest payments network, rose 0.8 percent to $253.66.

AT&T Inc. advanced 2.2 percent, the biggest increase in the Dow, to $30.71. CEO Randall Stephenson today said the acquisition of Deutsche Telekom AG’s T-Mobile USA would boost network capacity and improve service for devices such as Apple Inc. (AAPL)’s iPhone. The executive spoke at an event at the Council on Foreign Relations in New York. Apple fell 0.7 percent to $348.63.

PPG Surges

PPG Industries Inc. (PPG) gained 5.9 percent to $95.93, its highest price since at least 1980. The world’s second-biggest paint maker forecast first-quarter profit of at least $1.30 a share, beating the average analyst estimate of $1.12.

Salesforce.com (CRM) rose 5.6 percent to $134.49 after the largest supplier of customer-management software agreed to buy Radian6 Technologies Inc. for about $340 million in cash and stock to add software that lets companies keep abreast of the social Web.

BlackRock (BLK) surged 6.6 percent to $198.84. The company will replace Genzyme Corp. in the S&P 500 after the close of trading on April 1, S&P said in a statement. Separately, Citigroup Inc. added the shares to its “top picks” list. Genzyme, which is being removed from the index because France’s Sanofi-Aventis SA (SNY) is buying the company, dropped less than 0.1 percent to $76.01.

Coca-Cola

Coca-Cola Co. climbed 0.5 percent to $66.04 as the company said its bottled-water plants in Japan are operating 24 hours a day to meet increased demand because of concern that radiation discharges from the country’s stricken nuclear power plant have contaminated tap water.

Lennar Corp. (LEN) slumped 4.2 percent to $18.27 for the biggest decline in the S&P 500. Stephen East at Ticonderoga Securities LLC cut the homebuilder to “neutral” from “buy.”

Nvidia Corp. (NVDA) slid 3.8 percent, the second-biggest drop in the S&P 500, to $18.45. ThinkEquity LLC analyst Krishna Shankar lowered his price target for the maker of three-dimensional graphics processors to $18 from $24.

Ameron International Corp. lost 6.6 percent to $69.82 after the maker of fiberglass pipes posted a $4.3 million loss in its fiscal first quarter ended Feb. 27 as poor weather hurt sales.

First-Quarter Gains

The S&P 500 usually climbs further following first-quarter gains similar to this year’s, according to Birinyi Associates Inc. The index rises about 7.1 percent in the final three quarters of years following January-March gains of 5 percent to 7 percent, Birinyi data dating back to 1928 show.

The U.S. stock market is about to begin one of the most-bullish months of the year, according to a March 28 note by Bespoke Investment Group, a Harrison, New York-based research company. The Dow has averaged an April gain of 4.2 percent over the past five years, the note said. April has been the best performing month for the past 50 years, it also said.

“People remain very bullish,” said Wedbush Securities’ James. “It’s been one of the strongest first quarters we’ve had” in more than 10 years. “People want to make sure that they show enough long positions in their portfolios going into the end of the quarter tomorrow.”

To contact the reporter on this story: Cecile Vannucci in New York at cvannucci1@bloomberg.net

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

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