U.S. Stocks Gain Amid Speculation of More Fed Stimulus

U.S. stocks advanced, rebounding from yesterday’s decline, amid speculation the Federal Reserve will take steps to stimulate the economy and after the European Central Bank endorsed a plan to guarantee bank deposits.

All 10 groups in the Standard & Poor’s 500 Index rose as commodity, financial and industrial shares had the biggest gains. Boeing Co. (BA) jumped 3.5 percent as Sanford C. Bernstein & Co. raised its recommendation. Textron Inc. (TXT) rallied 4 percent as Warren Buffett’s Berkshire Hathaway Inc. agreed to buy planes from the company. First Solar Inc. surged 21 percent after delaying the close of a German plant to meet European demand.

The S&P 500 advanced 1.2 percent to 1,324.18 at 4 p.m. New York time, after briefly erasing gains following Fitch Ratings’ downgrade of 18 Spanish banks. The Dow Jones Industrial Average increased 162.57 points, or 1.3 percent, to 12,573.80. Trading volume for exchange-listed stocks in the U.S. was about 6.2 billion shares, 8.6 percent below the three-month average.

“It has been a bit schizophrenic,” said Mark Luschini, chief investment strategist for Philadelphia-based Janney Montgomery Scott LLC, which manages about $54 billion. “What’s taking place in the Spanish bond market is troubling. Yet pessimism is so high that the prospect of any relief would be enough to jump-start a rally in equities. It seems investors are desperate for continued liquidity injections.”

Stocks rose as Federal Reserve Bank of Chicago President Charles Evans said he would support measures to generate faster job growth. The policy-setting Federal Open Market Committee meets next week. Equities also gained as the ECB backed a European Commission proposal to guarantee deposits.

‘Significantly’ Miss

Earlier today, stocks fell as Spain’s bond yields climbed to a record after Fitch said the nation will “significantly” miss its budget deficit targets. The crisis in Spain, coinciding with the prospect of Greece leaving the euro after elections on June 17, has roiled markets. Benchmark gauges fell yesterday, reversing early gains, as optimism over Spain’s bailout plan gave way to skepticism it will halt the debt crisis.

“We’re going to just keep playing this game until there’s some final outcome of what’s going to happen with the euro,” Tom Wirth, who helps manage $1.5 billion as senior investment officer for Chemung Canal Trust Co., based in Elmira, New York, said in phone interview. “Europe is a total disaster.”

Optimism among global asset allocators “collapsed” this month as Europe’s debt crisis prompted money managers to sell equities and hoard cash to the highest level since 2008, a Bank of America Corp. survey showed.

Underweight Stocks

Respondents, who together manage $522 billion, reduced their holdings in stocks to underweight for the first time in seven months, meaning they now own less than are represented in indexes. Cash balances surged to 5.3 percent in June, the third- highest level on record, while an index of risk and liquidity sank to 30, the lowest level since September 2011.

“It’s not quite maximum bearish, but it’s close,” Bank of America strategists Michael Hartnett and Gary Baker wrote in the report to clients dated today. “Optimism has collapsed back to lows of autumn 2011.”

A two-month decline, which drove the S&P 500 (SPX) to the cheapest valuation since November, gave way to the biggest rally in 2012 last week. Today, measures of raw material, financial and industrial shares in the S&P 500 added at least 1.5 percent.

Alcoa Inc. (AA), the largest U.S. aluminum producer, rose 2.5 percent to $8.52. JPMorgan Chase & Co. (JPM) added 2.9 percent to $33.77. Chief Executive Officer Jamie Dimon plans to testify before Congress tomorrow about his firm’s $2 billion trading loss.

Boeing, Textron

Boeing climbed 3.5 percent to $72.58. The world’s largest aerospace company was raised to outperform from market perform by Sanford C. Bernstein analyst Douglas Harned. The 12-month share-price estimate is $92.

Air Lease Corp., the aircraft leasing company run by Steven Udvar-Hazy, is considering the purchase of 60 to 100 Boeing 737 Max aircraft with advanced engines as the company builds its fleet of single-aisle jets.

Textron rallied 4 percent to $24.52. Berkshire Hathaway’s NetJets division placed a record order valued at $9.6 billion with Textron and Bombardier Inc. The transaction covers as many as 150 Citation Latitude jets from Textron.

First Solar surged 21 percent, the most since 2009 (FSLR), to $14.95. The company is increasing production at its factory in Frankfurt an der Oder, Germany, and will scale back in the fourth quarter, Brandon Mitchener, a spokesman for Tempe, Arizona-based First Solar, said today.

Record Gain

A123 Systems Inc. surged a record 52 percent to $1.58. The maker of electric-car batteries said it has developed an improved lithium-ion cell that it says can cut costs of rechargeable and hybrid vehicles.

Michael Kors Holdings Ltd. (KORS) gained 7.7 percent to $41.10. The luxury-goods company forecast earnings and sales that exceeded analysts’ estimates.

Arena Pharmaceuticals Inc. (ARNA) rallied 11 percent to $7.88 as investors anticipate the company’s weight-loss pill will win U.S. regulatory approval.

Facebook Inc. (FB) rose 1.5 percent to $27.40. The company’s marketing and advertising services encourage users to purchase products in stores and online, ComScore Inc. said, countering criticism and research that questioned social-ad influence.

Zynga Inc. (ZNGA) dropped 10 percent to $4.98, a record low. The biggest maker of games played on Facebook fell after analysts at Cowen & Co. said daily active users for its social gaming declined 8.2 percent in May.

‘Volatile’ Economy

FactSet Research Systems Inc. (FDS) slumped 12 percent, the most since 2001, to $91.70. The provider of financial data forecast fourth-quarter revenue and profit that trailed analysts’ estimates, citing the “volatile” economy. FactSet Research competes with Bloomberg LP, the parent of Bloomberg News.

PNC Financial Services Group Inc. (PNC) slid 1.2 percent to $57.50. The seventh-largest U.S. commercial bank by deposits said it will boost reserves by $350 million to cover demands for refunds on faulty mortgages.

Harman International Industries Inc. (HAR) retreated 3.9 percent to $36.53, dropping 8.9 percent in two days. The maker of car audio and entertainment systems fell after Apple Inc. (AAPL) said yesterday it is working with automakers to put a Siri voice- command button onto steering wheels. Harman said Apple is a partner, not a rival.

The S&P 500 is still mired in a “bottoming phase” after this year’s best weekly rally failed to reverse a downtrend in companies that are most-tied to economic swings, RBC Capital Markets Corp. said.

Price Ratio

While the benchmark measure for U.S. equities jumped 3.7 percent last week, the relative price ratio of the Morgan Stanley Cyclical Index to the firm’s consumer index stayed below a downward-sloping trend that’s been in place since March. The cyclical index includes commodity and transportation stocks such as Alcoa and FedEx Corp., while the consumer gauge tracks companies that sell necessities such as Wal-Mart Stores Inc.

“If a broader low is developing in the market, then the relative performance of cyclicals versus non-durables should reverse its three-month downtrend,” Robert Sluymer, a New York- based analyst with RBC, wrote in a note today. “So far the trend remains down. We expect equity markets to back and fill over the coming one to two weeks before again trying the upside.”

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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