Dow Rallies to Highest Level Since May 2008 on Economy

U.S. stocks rose, sending the Dow Jones Industrial Average (INDU) to the highest level since May 2008, amid better-than-estimated housing and jobs market reports.

International Business Machines Corp. (IBM), which comprises 12 percent of the share-price weighted Dow, added 28 points to the index. Procter & Gamble Co. (PG) rose 3.1 percent as the largest consumer-products company said it will cut 5,700 jobs. PulteGroup Inc. and KB Home advanced at least 4.3 percent to pace gains in homebuilders. Sears Holdings Corp. (SHLD) soared 19 percent as it plans to raise as much as $770 million by selling 11 store sites and separating some smaller-format businesses.

The Standard & Poor’s 500 Index increased 0.4 percent to 1,363.46 at 4 p.m. in New York, erasing earlier losses. The benchmark gauge briefly rose above its April 2011 peak of 1,363.61 (SPX), which was the highest level since June 2008. The Dow gained 46.02 points, or 0.4 percent, to 12,984.69. The Russell 2000 Index (RTY) of small companies rallied 1.6 percent to 829.23.

“The recovery is starting to pick up speed,” Tom Wirth, who helps manage $1.5 billion as senior investment officer for Chemung Canal Trust Co., in Elmira, New York, said in a phone interview. “There was so much fear about what was happening in Europe that people couldn’t see through all of that.”

Stocks gained as applications for jobless benefits were unchanged in the week ended Feb. 18 at 351,000, the fewest since March 2008. A report from the Federal Housing Finance Agency showed that a gauge of home prices jumped 0.7 percent in December, beating estimates. The euro rose to the strongest level in more than 10 weeks against the dollar as a report showed German business confidence climbed.

Monthly Gain

Today’s advance extended the S&P 500’s rally in February to 3.9 percent. The index was poised for a third straight month of gains, the longest streak in a year, on higher-than-estimated economic data. Still, it was the second time this week that the S&P 500 failed to hold above its highest close since 2008.

“Sometimes when you’re knocking on the door of a meaningful psychological level you have to knock hard a few times to gain admittance,” David Sowerby, a Bloomfield Hills, Michigan-based portfolio manager at Loomis Sayles & Co., which oversees more than $155 billion, said in a phone interview. “Valuation is compelling. There’s been improvement in the economy. That provides potential for stocks to move higher.”

The Chicago Board Options Exchange Volatility Index, which measures the cost of using options as insurance against declines in the S&P 500, tumbled 7.6 percent to 16.80, the lowest since July. The Dow Jones Transportation Average added 0.7 percent, following a three-day slump. Nineteen out of 30 stocks in the Dow advanced. IBM jumped 1.9 percent, the second-biggest gain in the Dow, to $197.61.

Cost Savings

Procter & Gamble rallied the most in the Dow, rising 3.1 percent to $66.42. The cuts include 1,600 announced in January and will be achieved through attrition and layoffs, Paul Fox, a spokesman, said in an e-mail. The reductions are part of a plan to achieve $10 billion in cost savings by 2016, as detailed today by Chief Executive Officer Bob McDonald and Chief Financial Officer Jon Moeller at a conference in Florida.

A gauge of homebuilders in S&P indexes climbed 2.3 percent. KB Home (KBH) added 4.4 percent to $11.75. PulteGroup advanced 4.8 percent to $8.73.

Sears surged 19 percent, the most in the S&P 500, to $61.80. The rights offering to separate the Hometown and Outlet shops and some hardware stores may raise $400 million to $500 million, Hoffman Estates, Illinois-based Sears said today in a statement. The 11 sites will be sold to General Growth Properties for about $270 million, the retailer said.

Almost Doubled

Vivus Inc. (VVUS) soared 78 percent to $18.73 after the company’s pill Qnexa won the backing of a regulatory panel, moving the drug a step closer to gaining U.S. approval as the first new obesity treatment in 13 years.

Target Corp. (TGT) jumped 2.9 percent to $54.50. The second- largest U.S. discount retailer posted fourth-quarter earnings that exceeded some analysts’ estimates, helped by discount card initiatives and grocery sales.

MetroPCS Communications Inc. (PCS) rallied 14 percent to $11.70. The pay-as-you-go U.S. wireless carrier reported fourth-quarter profit that beat analysts’ estimates.

Apple Inc. (AAPL) rose 0.7 percent to a record $516.39. Chief Executive Officer Tim Cook, speaking today at an annual investor meeting, said Apple was continuing “active discussions” about what to do with its $97.6 billion in cash and investments, saying the cash hoard was “more than we need to run a company.”

HP Tumbles

Hewlett-Packard Co. (HP) dropped the most in the Dow, slumping 6.5 percent to $27.05. The U.S. computer manufacturer’s fiscal second-quarter profit forecast fell short of analysts’ estimates as consumers curtailed personal-computer purchases.

Solar shares fell after Germany, the world’s biggest market for solar power, plans record reductions in subsidies for the industry as part of a program to rein in a boom in installations. First Solar Inc. (FSLR) declined 8 percent to $37.20. Trina Solar Ltd. (TSL) tumbled 12 percent to $8.63.

Safeway Inc. (SWY) declined 7.6 percent to $20.95. The grocer’s fourth-quarter sales excluding fuel at stores open at least one year increased 1.5 percent, trailing the average 2 percent gain expected by analysts.

The rally in U.S. stocks has pushed a trend measure of the S&P 500 to an “extreme” level not seen since 2004, a sign that the advance may be stalling, according to Sundial Capital Research Inc.

The benchmark gauge’s Average Directional Index, which measures the strength of a trend, climbed to 40.7 yesterday. The last time the indicator was higher following an advance, in November 2004, the S&P 500 was stuck in a 93-point range over the next eight months, according to data compiled by Bloomberg.

The trend is “extended,” Jason Goepfert, president of Sundial in Blaine, Minnesota, wrote in a note yesterday. “Almost every time, by the time the trend becomes this strong, it’s about to become significantly less so.”

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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