U.S. Stocks Rise After Durable Goods, Home Prices Beat Forecasts

Photographer: Richard Drew/AP

Traders work on the floor of the New York Stock Exchange Monday, July 18, 2011. Close

Traders work on the floor of the New York Stock Exchange Monday, July 18, 2011.

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Photographer: Richard Drew/AP

Traders work on the floor of the New York Stock Exchange Monday, July 18, 2011.

U.S. stocks rose, extending the biggest rally for the Standard & Poor’s 500 Index in a week, after reports on durable-goods orders and home prices beat economists’ forecasts and banks advanced.

Financial stocks in the S&P 500 rose 2.8 percent, the biggest gain within 10 industries. Bank of America Corp. (BAC) surged 11 percent as Meredith Whitney, who predicted Citigroup Inc. (C)’s dividend cut three years ago, said it has no urgent need to raise capital. A gauge of 12 homebuilders in S&P indexes added 3.6 percent. Newmont Mining Corp. (NEM) slumped 1.6 percent after gold futures plunged the most since 2008 as demand for havens waned on speculation financial markets may be stabilizing.

The S&P 500 rose 1.3 percent to 1,177.60 at 4 p.m. in New York. The durable-goods data wiped out a 1.4 percent retreat in futures on the index. The Dow Jones Industrial Average added 143.95 points, 1.3 percent, to 11,320.71.

“Any time you see life in the walking dead, it certainly makes you feel a lot better,” Bruce McCain, who helps oversee $22 billion as chief investment strategist at the private- banking unit of KeyCorp in Cleveland, said in a telephone interview. “There’s so much pessimism priced into the market that if we get any decent news, it’s going to buoy investors’ spirits. If investors can be reassured that a disaster is not imminent, that’s good for the market.”

With traders awaiting a speech on Aug. 26 by Federal Reserve Chairman Ben S. Bernanke in Jackson Hole, Wyoming, trading is being affected more than usual by levels monitored by so-called technical analysts who base forecasts on price and volume history.

Losing Momentum

An earlier rally today lost momentum after the S&P 500 climbed to about 1,173, its closing level after gains of 4.7 percent on Aug. 9 and 4.6 percent on Aug. 11. The index surged yesterday after falling to 1,121.09 the day before, within 2 points of its 11-month closing low of 1,119.46 reached Aug. 8.

“Resistance came in pretty much where you would expect to see it followed by a predictable pullback to last night’s close,” Michael Shaoul, chairman of Marketfield Asset Management in New York, said in an e-mail. His firm oversees $1 billion. “The most likely outcome is still a retracement of the majority of yesterday’s gains in the U.S., but if the S&P 500 could move back up above 1,170-1,175 again, maybe you’d get the shorts under some pressure.”

Equities rose today after the reports on goods meant to last at least three years and housing prices contrasted with data this month on jobless claims, consumer confidence and manufacturing that spurred concern the U.S. is poised for a recession. The S&P 500 lost 15 percent between April 29 and yesterday, with the retreat accelerating in July after a debate in Congress on how to cut the budget deficit spurred S&P to strip the government of its AAA credit rating.

‘Choppy And Sloppy’

“The market is still incredibly choppy and sloppy,” Mike Ryan, the New York-based chief investment strategist at UBS Wealth Management Americas, said in a telephone interview. His firm oversees $774 billion. “For those who are waiting for the Fed to pull a rabbit out of its hat on Friday, there’s room for disappointment.”

During last year’s conference in Jackson Hole, Bernanke signaled a second round of asset purchases, known as QE2, that buoyed asset markets. The S&P 500 rose 28 percent between Aug. 26, 2010, and Feb. 18 after he foreshadowed the $600 billion Treasury program.

Gold declined 5.6 percent to $1,757.30 an ounce on speculation financial markets may be stabilizing, eroding the appeal of the precious metal as a haven. The futures climbed to a record high of $1,917.90 yesterday.

Hiding in Gold

“Gold is where people are hiding versus the stock market, so as the stock market stabilizes or improves, you will see gold sell off,” Mark Bronzo, who helps manage $26 billion at Security Global Investors in Irvington, New York, said in an e- mail. “The markets will continue to be volatile as we head into Friday and Bernanke’s speech.”

The KBW Bank Index (BKX) of 24 stocks added 3.3 percent. Bank of America jumped 11 percent to $6.99 after plunging 53 percent this year through yesterday.

“I don’t think that there’s a mad dash to raise capital immediately,” Whitney, a bank analyst, said today in a radio interview on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. “They’re going to steadily raise capital over time.”

Richard Bove, an analyst who said last month that clients should stop buying financial stocks, recommended investors resume purchases after shares of U.S. banks tumbled.

Fallen Too Much

Bank of America, JPMorgan Chase & Co. (JPM) and Citigroup Inc. are among lenders that investors should buy because “they have fallen too much,” Bove, a Lutz, Florida-based analyst with Rochdale Securities LLC, said today in a research note. In a note to clients last month, Bove said clients should stop buying banks “since all stocks are likely to fall.”

JPMorgan gained 3 percent to $35.83, while Citigroup added 4.1 percent to $28.45.

D.R. Horton Inc. paced gains in homebuilders, rising 5.7 percent to $9.45, following the report showing an increase in home prices. Toll Brothers Inc. (TOL), the largest U.S. luxury-home builder, jumped 4.6 percent to $15.42 after reporting earnings that beat analysts’ forecasts after a tax benefit and demand for its move-up houses remained stronger than other segments of the market.

Newmont, the largest U.S. gold producer, fell 1.6 percent to $60.26.

Stock Pessimism

Pessimism about U.S. stocks among newsletter writers increased the most since July 2007, a bullish signal to analysts who track investor sentiment as a contrarian indicator of share performance. The share of bearish publications among about 120 tracked by Investors Intelligence rose to 33.3 percent yesterday, the highest level in a year, from 23.7 percent a week earlier.

“It’s good for stocks because it’s a contrarian indicator,” Michael Gibbs, Memphis, Tennessee-based chief equity strategist at Morgan Keegan Inc., said in a telephone interview. His firm oversees about $80 billion in client assets. “Although these extreme readings seldom coincide with an exact bottom, they are pieces in a puzzle that forms the bottom,” he said. “Human emotion typically drops to the maximum amount of pessimism near market bottoms.”

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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