U.S. Stocks Rise as S&P 500 Posts Second-Best Start Since 2006

U.S. stocks (SPX) rose this week, sending the Standard & Poor’s 500 Index to its second-best start of a year since 2006, as reports on manufacturing from America to China bolstered optimism about the global economy.

Equities fell on the last day of the week after growth in U.S. jobs failed to lift the S&P 500 above its October high. Bank of America Corp. (BAC) and Microsoft Corp. (MSFT) jumped more than 8.3 percent to lead advances in the Dow Jones Industrial Average (INDU) during the holiday-shortened week. Netflix Inc. (NFLX) soared 25 percent after reporting online viewing that surpassed an estimate from BTIG LLC. Sears Holdings Corp. (SHLD) and AutoNation Inc. (AN) fell more than 8.1 percent to pace declines among retailers.

The S&P 500 climbed 1.6 percent to 1,277.81 in the first four trading days of the year, the second-best start in the past six years after a 2.4 percent gain in 2010, according to data compiled by Bloomberg. The Dow added 1.2 percent, or 142.36 points, to 12,359.92 for the week.

“The pace of growth is slowing but we’re still seeing corporate growth,” Peter Jankovskis, who helps manage about $2.4 billion at Oakbrook Investments in Lisle, Illinois, said in a phone interview. “The U.S. economy is moving along reasonably well. When the negative factor of Europe goes away, that comes back to the fore and allows the markets to move forward.”

Top of Range

Stocks gained during the week after reports showed U.S. factory output grew in December at the fastest pace in six month while manufacturing data in China beat economists’ estimates. The S&P 500 has jumped 16 percent from its 2011 low as better- than-expected economic data boosted optimism that the world’s largest economy can weather Europe’s sovereign-debt crisis. The rally has brought the index toward the top of a trading range it has been stuck in since August and pushed the Chicago Board Options Exchange Volatility Index (VIX), a gauge of market fear, to 20.63, the lowest level since July.

The S&P 500 snapped a three-day gain on Dec. 6 even after figures from the Labor Department showed payroll growth in December beat forecasts and the unemployment rate dropped to the lowest level in almost three years. A report showing German factory orders had the biggest drop in almost three years spurred concern that Europe was headed into a recession.

Raw-materials producers (SPXL1) and financial shares led the S&P 500’s gain during the week, jumping 3.8 percent and 3.1 percent as a group, respectively. Bank of America rallied 11 percent to $6.18 amid speculation the U.S. may introduce a new mortgage refinancing program. A government official, who asked for anonymity, denied that the White House is considering a trillion-dollar plan to refinance home loans.

Latin American Farmers

Monsanto Co. (MON) surged 11 percent to $77.51. The world’s largest seed company posted first-quarter earnings that exceeded estimates because of demand from Latin American farmers. U.S. orders are ahead of last year, Monsanto said.

Alcoa Inc. (AA), due to start the earnings season on Jan. 9, added 5.9 percent to $9.16. The biggest U.S. aluminum producer may say it lost 1 cent a share in the fourth quarter, according to the average estimate from analysts in a Bloomberg survey.

Microsoft, the software maker that’s scheduled to report results on Jan. 19, climbed 8.3 percent to $28.11.

S&P 500 companies, which beat analysts’ estimates in the previous 11 quarters, are forecast to report a 6 percent increase in per-share profit during the September-December period, according to projections compiled by Bloomberg. That would mark the slowest growth since the third quarter of 2009.

Online Viewing

Netflix surged 25 percent to $86.29 for the biggest gain in the S&P 500. The owner of the streaming and DVD-by-mail service said its online customers watched more than 2 billion hours of content in the last three months of 2011. Rich Greenfield, an analyst with BTIG, estimated 1.2 billion hours.

AutoNation posted the biggest loss (SPX) on the S&P 500, sinking 9.3 percent to $33.44. Edward Lampert’s hedge fund cut its stake in the auto retailer to 52.5 percent from 56.4 percent, according to a regulatory filing.

Sears fell 8.1 percent to $29.20, extending its slump for a fifth week. The largest U.S. department store chain had its debt rating cut by S&P and Moody’s Investors Service on deteriorating earnings.

“What U.S. investors are focused on are three exogenous variables: the sovereign debt mess in Europe, the prospect of slower growth out of emerging markets and the policy dysfunction that we’re dealing with in Washington,” Philip Orlando, the New York-based chief equity market strategist at Federated Investors Inc., said in a telephone interview. His firm oversees about $355 billion. “If those issues didn’t exist, the S&P 500 would be at something like 1,800, because of this improvement in domestic economic fundamentals that we’ve seen.”

To contact the reporters on this story: Katia Porzecanski in New York at kporzecansk1@bloomberg.net; Lu Wang in New York at lwang8@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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