Stocks Climb on Earnings; Gasoline Surges Amid Mississippi River Flooding
Stocks rose amid improving earnings, sending the Standard & Poor’s 500 Index up for a third day, while gasoline surged as flooding along the Mississippi River threatened to cut supplies. Greek bonds rallied as speculation grew the nation will avoid a debt restructuring.
The S&P 500 advanced 0.8 percent to 1,357.16 at 4 p.m. in New York. Gasoline jumped 3.1 percent and oil rose 1.3 percent to $103.88 a barrel in New York, erasing early losses. Greek 10- year yields fell 28 basis points to 15.43 percent. The yen weakened versus 15 of 16 most-traded peers and the Swiss franc depreciated against all 16 as investors pursued riskier assets. Treasuries fell following an auction of three-year debt.
U.S. equities extended their rebound from last week’s slump, the worst for the S&P 500 since March, as companies including Dean Foods Co. (DF) and Fossil Inc. (FOSL) raised earnings forecasts. Deutsche Post AG, the world’s biggest carrier of air and sea freight, surged in Frankfurt after reporting results. The International Monetary Fund is arranging a package of as much as 100 billion euros ($144 billion) to replace Greece’s existing bailout, Athens-based Kathimerini reported.
“Corporate earnings continue to surprise on the upside,” said Alex Tedder, who helps manage about $13 billion in global stocks at American Century Investments in New York. “There’s been a lot of noise and uncertainty with oil and Greece in particular, but investors are being pragmatic and they’re rewarding solid corporate fundamentals.”
The S&P 500 capped its first three-day rally in two weeks. Dean Foods, the largest U.S. milk processor, jumped 11 percent for the biggest gain in the index. Fossil, the maker of watches and other accessories, rallied 13 percent to $105.97, the highest price on a closing basis since the company went public in 1993. Earnings-per-share have exceeded analysts’ estimates at 72 percent of the 423 companies in the S&P 500 that reported results since April 11, Bloomberg data show.
Stocks also gained amid optimism that corporate takeovers will continue to help fuel the two-year rally that sent the S&P 500 up as much as 102 percent from its bear-market low in 2009. About $884 billion in deals have been announced globally so far in 2011, 26 percent more than at the same time last year, Bloomberg data show.
Microsoft Corp. (MSFT) said today it agreed to buy Skype Technologies SA for $8.5 billion in cash to gain the world’s most popular Internet calling service and its 663 million customers. Microsoft shares slipped 0.6 percent while EBay Inc. (EBAY), which owns part of Skype, rose 2.5 percent.
Miller Chases Value
Financial, technology and health-care stocks offer “value,” Bill Miller, the chairman and chief investment officer of Legg Mason Capital Management Inc., wrote in the Financial Times today. He said valuations in those industries have been more expensive 90 percent of the time during about the past 60 years. S&P 500 financial companies are currently trading at 13.6 times reported operating earnings, while technology stocks are trading at 15.6 times and health-care shares are selling at a multiple of 13.2.
Miller said a lower U.S. dollar and higher commodity prices will be “bearish not bullish” for stocks as the Federal Reserve is set to end its asset-purchase program next month. Miller’s Legg Mason Capital Management Value Trust fund outperformed the S&P 500 annually for 15 straight years through 2005. It was outperformed by 98 percent of peers in 2010, according to data compiled by Bloomberg.
The Dollar Index, which tracks the currency against six peers, has fallen 16 percent from its peak on June 7, 2010, and helped propel a 49 percent rally in the S&P GSCI Index of raw materials over the same period.
Gasoline for June delivery jumped 3.1 percent to $3.3797 a gallon after rising 6.1 percent yesterday, the most since July 2009, as high water levels on the Mississippi caused docks to shut down and threatened further interruptions to supplies. The potential opening of a spillway along the Mississippi to relieve flooding may “significantly” reduce operations at two refineries, according to a statement from Governor Bobby Jindal’s office. Inventories are at a 22-month low before the start of summer driving season.
Sugar, silver and cotton also climbed more than 3.4 percent to lead gains in 22 of the 24 commodities tracked by the S&P GSCI Index. Only coffee and corn fell. The S&P GSCI rose 1.4 percent, adding to yesterday’s 3.6 percent rebound.
The gauge of commodities sank 11 percent last week, its biggest tumble since 2008, as oil slid 15 percent after U.S. forces killed Osama bin Laden, leader of the al-Qaeda terrorist network, and silver plunged 27 percent as the CME Group Inc. raised margin requirements for trading the metal on its exchange.
Almost seven shares gained for each that fell in the Stoxx Europe 600 Index. Deutsche Post AG (DPW) rose 1.3 percent, and InterContinental Hotels Plc, owner of the Holiday Inn brand, rallied 3.9 percent. Imperial Tobacco Group Plc (IMT) jumped 3.1 percent after saying it will buy back 500 million pounds ($818 million) of shares a year. Per-share profit at the 238 companies in the European benchmark that reported results since April 11 rose 8.7 percent, with 58 percent beating analysts’ estimates.
Treasuries fell, with three-year note yields rising for the first time in nine days, after the U.S. government’s auction of $32 billion of the debt. The notes drew a yield of 1 percent, compared with the average forecast of 1.01 percent in a Bloomberg News survey of eight of the Federal Reserve’s 20 primary dealers. The yield on the current three-year note climbed five basis points to 0.97 percent.
The difference in yield between Greek 10-year bonds and benchmark German bunds narrowed 30 basis points to 1,231 basis points. Allowing a euro-area member state to default on or restructure its debt would be “wrong,” European Central Bank Executive Board member Lorenzo Bini Smaghi said today.
German bunds snapped a three-day gain, pushing the 10-year yield up two basis points to 3.12 percent. The Portuguese-German yield spread widened to 659 basis points.
The cost of protecting U.S. company bonds from default declined to the lowest level in a week. The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, decreased 0.9 basis point to a mid-price of 88.48 basis points, according to index administrator Markit Group Ltd.
The MSCI Emerging Markets Index gained 0.5 percent. China’s Shanghai Composite Index climbed 0.6 percent as the government said exports increased by a bigger-than-estimated 30 percent to a record in April.
The yen weakened 0.9 percent against the euro and 0.6 percent versus the dollar. The euro was 0.3 percent higher at $1.4407. The Swiss franc depreciated more 1 percent against the dollar and 1.3 percent versus the euro.
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