U.S. stocks advanced, trimming the biggest weekly decline since October 2008 for the Dow Jones Industrial Average, amid speculation that policy makers will act to prevent a global financial crisis from getting worse.
Home Depot Inc. (HD) and Intel Corp. (INTC) added at least 2 percent, pacing gains in companies most-tied to economic growth. Bank of America Corp. (BAC) rallied 4.1 percent, the most in the Dow, as the lender prepared more asset sales to bolster capital. Nike Inc. (NKE), the world’s largest sporting-goods maker, jumped 5.3 percent after profit topped analysts’ estimates and it raised a sales forecast. Newmont Mining Corp. (NEM) and Halliburton Co. (HAL) retreated more than 3.2 percent as gold and oil prices slumped.
The Standard & Poor’s 500 Index rose 0.6 percent to 1,136.43 at 4 p.m. New York time, trimming its weekly drop to 6.5 percent. The Dow added 37.65 points, or 0.4 percent, to 10,771.48. The gauge lost 6.4 percent since Sept. 16.
“Policy is viewed as inept, inert and basically out of bullets,” Paul Zemsky, the New York-based head of asset allocation for ING Investment Management, wrote in an e-mail. His firm oversees $550 billion. “If there was a good policy response, we could see the stock market rally 10 percent very quickly.”
A four-day rout this week erased $1.1 trillion in U.S. market value on speculation that central bankers would fail to prevent a financial crisis. The S&P 500 has slumped 17 percent since April 29 on concern that Europe’s debt crisis could derail the global economic recovery.
The European Central Bank may step up efforts to boost growth and ease financial-market tensions as early as next month, Governing Council members said. European governments are exploring speeding the setup of a permanent rescue fund, an internal working paper shows.
“There was a mention that if things continue to deteriorate in Europe that there would be a policy announcement, a pro-active response,” said Peter Kenny, a managing director in institutional sales at Knight Capital Group Inc. in Jersey City, New Jersey. “That could give the market some lift, but that doesn’t resolve the underlying problem.”
The S&P 500 started the session trading for 12.4 times earnings in the last 12 months, within 2 percent of a low of 12.2 reached Aug. 8, data compiled by Bloomberg show. The ratio would have to narrow another 18 percent to match its level on March 9, 2009, the start of the bull market in which the gauge rose as much as 102 percent, the data show.
The price-earnings ratio as of yesterday was 5.1 percent below the S&P 500’s average valuation of 13 at its lowest point in the last nine bear markets, data compiled by Bloomberg show. To reach the lowest of those, 7 on June 21, 1982, the index would have to fall 43 percent to about 640, based on profit in the last 12 months of $91.41 a share.
“Stocks are starting to get pretty cheap,” Jack Ablin, chief investment officer for Chicago-based Harris Private Bank, which oversees $55 billion, said in a telephone interview. “It’s reality versus expectations. I don’t know where reality is going to be, but if their expectations are pretty low, that’s a good sign for me.”
The Morgan Stanley Cyclical Index of companies most-tied to the economy rallied 1.1 percent. Home Depot, the largest U.S. home improvement retailer, gained 2 percent to $33.72. Intel rose 2.5 percent to $22.16.
The Dow Jones Transportation Average advanced for the first time in a week, stopping the worst five-day decline since Aug. 8, as airline shares rallied and traders were lured by the lowest valuations in about two years.
Delta Air Lines Inc. (DAL) and United Continental Holdings Inc. surged at least 6.3 percent to lead gains as the average rallied 1.7 percent. Con-way Inc., a freight hauler, advanced 3.5 percent while railroad operator CSX Corp. (CSX) climbed 3.4 percent.
The benchmark gauge for transportation companies had slipped 11 percent in five days through yesterday, driving its price-earnings ratio down to a 26-month low of 18.7. The period marked the worst slump since early August when S&P stripped the U.S. of its AAA rating and policy makers struggled to reach a compromise on raising the nation’s debt ceiling, sending the S&P 500 to its 2011 low.
Bank of America rose 4.1 percent to $6.31. The lender is in exclusive talks to sell its stake in NPC International Inc., the biggest U.S. Pizza Hut franchisee, for more than $800 million, said two people with knowledge of discussions. The lender also agreed to sell about $880 million in commercial mortgages at a discount of as much as 25 percent, said another person.
Nike rallied 5.3 percent to $88.64. Chief Executive Officer Mark Parker has been trying to overcome rising costs for raw materials and transporting goods by cutting operating expenses. Nike’s gross margin, the percentage of sales left after the cost of goods sold, narrowed by 2.7 percentage points, less than the company’s projection for a 3 percentage point decline.
Gauges of energy and raw material producers had the two biggest declines in the S&P 500 within 10 industries, falling at least 0.3 percent. Newmont Mining, the largest U.S. gold producer, slumped 3.7 percent to $62.86. Halliburton decreased 3.2 percent to $31.67.
Stocks are having the worst quarter on record relative to U.S. Treasuries and gold, which may force investors to buy equities to rebalance their allocations, JPMorgan Chase & Co.’s Marko Kolanovic said.
U.S. and emerging-market equities have returned 43 percentage points less, the most during a quarter since at least 2002, according to data compiled by Kolanovic, whose analysis is based on a model portfolio composed of stocks, bonds and gold.
“This underperformance may trigger significant quarterly rebalance flows into equities and out of Treasuries at the end of next week,” Kolanovic, the New York-based global head of equity derivatives strategy at JPMorgan, wrote in a note to clients yesterday.
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