U.S. Stocks Advance on Speculation About Bailout for Greece
U.S. stocks advanced, trimming the Standard & Poor’s 500 Index’s biggest monthly decline since August, amid speculation the European Union will decide on additional aid for Greece.
Bank of America Corp. (BAC) and Citigroup Inc. increased at least 1 percent, following gains in European financial companies. Mosaic Co. (MOS) and Potash Corp. of Saskatchewan Inc. advanced more than 2.9 percent after Citigroup raised its recommendations for the fertilizer producers. Intel Corp. (INTC) gained 1.4 percent as the world’s largest chipmaker seeks to challenge Apple Inc. (AAPL)’s iPad and other tablets with a new “ultrabook” laptop.
The S&P 500 rallied 1 percent to 1,344.47 at 9:34 a.m. in New York. The benchmark gauge for American equities fell 2.4 percent this month through May 27. The Dow Jones Industrial Average added 123.14 points, or 1 percent, to 12,564.72 today.
“Speculation that European officials will provide further assistance to Greece is a positive trigger for an upward move in equity markets today,” said Jens Finkbeiner, who manages about $200 million at F+M Financial GmbH in Frankfurt. “I’m expecting the markets to rise further in the next few days, though the question remains to know whether this is sustainable.”
The S&P 500 fell from an almost three-year high on April 29 on concern about Europe’s debt crisis and weaker-than-forecast economic data. Still, the gauge rose 5.8 percent from the end of 2010 through May 27 amid government stimulus measures and higher-than-forecast corporate profits.
Global stocks rallied today after Jean-Claude Juncker, head of the group of euro-area finance ministers, said European Union leaders will decide on additional aid for Greece by the end of June and have ruled out a “total restructuring” of the nation’s debt.
Inspectors from the EU, the International Monetary Fund and the European Central Bank are set to wrap up a review of Greece’s progress in meeting the terms of last year’s 110 billion-euro ($158 billion) bailout in coming days. The EU will then formulate its plan for further aid to Greece, which remains shut out of financial markets a year after the rescue package.
Stock futures rose before the open of exchanges even after a report showed that home prices in 20 U.S. cities dropped in March to the lowest level since 2003, showing housing remains mired in a slump almost two years into the economic recovery.
Weakest Since 2003
The S&P/Case-Shiller index of property values in 20 cities fell 3.6 percent from March 2010, the biggest year-over-year decline since November 2009, the group said today in New York. At 138.16, the gauge was the weakest since March 2003 and broke the low of 139.26 reached in April 2009, two months before the recession ended.
Banks rallied, following gains in European financial stocks. Bank of America added 1.6 percent to $11.88. Citigroup gained 1.1 percent to $41.41.
Mosaic increased 2.9 percent to $72.04. North America’s second-largest fertilizer producer and Potash were raised to “buy” from “hold” at Citigroup Inc. (C), which cited a better outlook for the companies’ earnings. Potash rose 3.2 percent to $57.80.
Intel advanced 1.4 percent to $22.53. The world’s largest chipmaker is promoting a new type of thinner laptop called an ultrabook seeking to help the personal-computer industry fend off a challenge from Apple’s iPad and other tablets.
Radian Group Inc. (RDN) gained 8.6 percent to $5.20. The mortgage insurer was raised to “overweight” from “neutral” at Piper Jaffray Cos., which cited a stronger position on both credit and capital.
The longest stretch of declines for the S&P 500 in a year has left valuations at the lowest level ever compared with speculative-grade debt.
Earnings from the past 12 months for companies in the benchmark gauge for U.S. equities reached 6.64 percent of share prices this month, according to data compiled by Bloomberg. That compared with the 6.61 percent average yield on junk bonds, data from Barclays Plc show. It was the first time the spread, a way of comparing debt and equity values, has shown stocks with a higher yield, according to Bloomberg data going back to 1987.
Concern the U.S. economic recovery will falter as the government reduces its unprecedented stimulus has sent the S&P 500 down four weeks in a row, reducing valuations relative to profits. When the gap with bonds approached this level in September, the stock index returned 19 percent in the next six months, doubling the return in credit markets.
“People will recognize that there is something of an anomaly there,” Paul Niven, the London-based head of multi- asset investments at F&C Asset Management Plc, which oversees 106 billion pounds ($175 billion) said in an interview on May 25. “You are better to be in equities than credit at this point of the cycle. There is a better valuation cushion.”
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