U.S. Stocks Rally as Jobless Claims, Profits Offset Europe Woes

U.S. stocks rallied, reversing yesterday’s drop for the Standard & Poor’s 500 Index, as a decline in jobless claims and better-than-estimated corporate earnings tempered concern Europe’s debt crisis is worsening.

All 10 groups in the S&P 500 advanced at least 2.5 percent, with gains being led by financial, energy and raw-material companies. Bank of America Corp. (BAC) and JPMorgan Chase & Co. (JPM) rallied more than 6.7 percent, after plunging at least 5.5 percent yesterday. Cisco Systems Inc. (CSCO), the world’s largest maker of networking equipment, soared 16 percent, the most since May 2002, as profit and sales beat analysts’ estimates.

The S&P 500 surged 4.6 percent to 1,172.64 at 4 p.m. in New York. The gauge had plunged as much as 18 percent from its 2011 high and yesterday traded at 12.3 times reported earnings, the lowest valuation since March 2009, according to data compiled by Bloomberg. The Dow Jones Industrial Average jumped 423.37 points, or 4 percent, to 11,143.31 today.

“We’re in the process of trying to establish a bottom,” James Paulsen, the chief investment strategist at Minneapolis- based Wells Capital Management, which oversees about $340 billion, said in a telephone interview. “The jobless claims number was calming in the middle of the storm. It’s a good reminder that -- hey, we have stuff going on in Europe, but if the economy does not roll into a recession, there’s no reason for stocks to be selling at these levels.”

$3 Trillion

Almost $3 trillion was erased from U.S. equity values in the last three weeks as Europe’s debt concern, signs the economy is slowing and S&P’s downgrade of the government’s AAA credit rating left the benchmark gauge for U.S. shares within 11 points of a bear market. Both European shares and the Russell 2000 Index of small companies entered a bear market this week, falling at least 20 percent from their previous highs.

The whipsaw in stocks this week has left the S&P 500 down 2.2 percent since Aug. 5. Today’s gain erased yesterday’s 4.4 percent decline in the gauge, which had been propelled by a drop in banks. The index rose 4.7 percent on Aug. 9 and fell 6.7 percent on Aug. 8.

Stocks rose today as a report showed that claims for unemployment insurance payments in the U.S. unexpectedly fell last week to a four-month low. First-time applications for jobless benefits decreased 7,000 in the week ended Aug. 6 to 395,000, the fewest since early April, the Labor Department said. Economists forecast 405,000 claims, according to the median estimate in a Bloomberg News survey.

Trade Deficit

A separate report showed that the U.S. trade deficit unexpectedly increased in June to the highest level since October 2008 as a slump in exports exceeded a decline in shipments from overseas.

A rout in global equity markets since July 26 erased $7.9 trillion in equity values through yesterday. Central bankers are trying to restore investor confidence, with the Federal Reserve pledging to keep interest rates near zero through at least mid-2013 to bolster U.S. growth and the European Central Bank buying bonds to cap borrowing costs.

Financial shares had the biggest gain in the S&P 500 within 10 groups, rising 6.3 percent. The group plunged 7.1 percent yesterday. Bank of America, the nation’s biggest lender, added 7.1 percent to $7.25. JPMorgan increased 6.8 percent to $36.69.

Benchmark indexes were also lifted by better-than-estimated corporate earnings. Since July 11, about 76 percent of S&P 500 companies that have released quarterly results beat projections, according to data compiled by Bloomberg. Earnings per share have increased 17 percent, while sales rose 13 percent.

Strong Balance Sheets

“Balance sheets are very strong,” Abby Joseph Cohen, the Goldman Sachs Group Inc. strategist known for predicting the 1990s bull market, said in a radio interview on “Bloomberg Surveillance” with Ken Prewitt and Tom Keene. “This market volatility is happening at a time when U.S. companies, especially those in the S&P 500, are performing extremely well. Stocks, not just in the United States, but in some of the other major markets, are also priced at very low levels.”

Cisco Systems soared 16 percent to $15.92. The company has reined in operating expenses, unveiling a plan to cut about 6,500 jobs worldwide and closing the Flip video camera unit to concentrate on its more profitable switches and routers.

News Corp. (NWSA) surged 18 percent, the biggest gain in the S&P 500, to $16.19. The owner of Fox TV and the Wall Street Journal posted profit that beat estimates and raised its dividend 27 percent, cushioning investor losses after a phone-hacking scandal hurt the stock.

Kohl’s Forecast

Kohl’s Corp. (KSS) gained 7.3 percent to $47.50. The fourth- largest U.S. department-store chain said profit per share this year would be higher than it previously forecast.

Brinker International Inc. (EAT) surged 14 percent to $23.54. The operator of the Chili’s restaurant chain forecast 2012 profit that exceeded analysts’ estimates.

Energy shares in the S&P 500 rose 5.2 percent as crude oil rallied. Chevron Corp. (CVX) added 3.9 percent to $94.07.

A single trade for 100 shares of Exxon Mobil Corp. (XOM) more than 6 percent below yesterday’s closing price led to the triggering of a circuit breaker, pausing trading in the stock.

The trade, later canceled, was executed at 10:33 a.m. New York time at $63.47 on an exchange operated by Bats Global Markets, according to data sent to Bloomberg. The stock closed at $68.03 yesterday and the highest price in the 5 minutes before the halt was $69.91, the data show. The shares closed 5.2 percent higher today, at $71.58.

Smaller Harvest

Fertilizer producers advanced after the U.S. government said corn, soybean and spring-wheat harvests will be smaller than forecast last month. CF Industries Holdings Inc. (CF) gained 10 percent to $164.19. Mosaic Co. (MOS) increased 8.4 percent to $64.46.

Only two stocks in the S&P 500 fell today. Sara Lee Corp., the maker of Ball Park hot dogs and Senseo coffee, dropped 1.3 percent to $17.09 after its sales forecast trailed estimates. Sprint Nextel Corp., the third-largest U.S. mobile-phone carrier, slid 1.3 percent to $3.12.

More executives at S&P 500 companies are buying their stock than any time since the depths of the credit crisis after valuations plunged 25 percent below their five-decade average.

Sixty-six insiders at 50 companies bought shares between Aug. 3 and Aug. 9, the most since the five days ended March 9, 2009, when the benchmark index for U.S. equities reached a 12- year low, according to data compiled by Bloomberg. Morgan Stanley Chief Executive Officer James Gorman and two other managers purchased 175,000 shares of the New York-based bank as the shares fell to the lowest level since March 2009, according to filings with the U.S. Securities and Exchange Commission.

“Nobody knows a company better than the people running it,” Shawn Price, who manages $2.4 billion at Navellier & Associates Inc. in Reno, Nevada, said in a telephone interview. “It’s a positive sign that they are committing their personal capital.”

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

To contact the editor responsible for this story: Michael P. Regan at mregan12@bloomberg.net

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