U.S. Stocks Rally to Give Dow Best Month Since October

U.S. stocks rallied for the week, lifting the Dow Jones Industrial Average to the best monthly gain since October, amid optimism an agreement by European leaders on banks will help contain the region’s debt crisis.

All 10 industry groups in the Standard & Poor’s 500 Index rose. Energy companies jumped the most, climbing 4.8 percent, as oil rebounded. A gauge of homebuilders rallied 13 percent as housing data beat forecasts and Lennar Corp.’s profit surged. Hospital companies including Tenet (THC) Healthcare Corp. jumped after the Supreme Court upheld the core of President Barack Obama’s industry overhaul. Nike Inc. (NKE) sank 12 percent while Research In Motion Ltd. (RIM) plunged 25 percent amid disappointing earnings.

The S&P 500 advanced 2 percent to 1,362.16 during the week, extending its increase in June to 4 percent, the most since February. The Dow gained 239.31 points, or 1.9 percent, to 12,880.09 for the week, finishing the month up 3.9 percent.

“It looks like Europe is moving toward a resolution of keeping the euro together,” George Young, a partner at St. Denis J. Villere & Co. in New Orleans, said in a telephone interview. His firm oversees about $1.6 billion. “We are putting money into stocks. We believe that the U.S. is going to do well longer term.”

Global stocks rallied on the last day of the week, with the S&P 500 surging 2.5 percent for its biggest advance of the year, as euro-area leaders agreed to relax conditions on emergency loans for Spanish banks and possible help for Italy. In the U.S., economic reports during the week showed home sales and orders for durable goods rebounded while consumer spending stalled and confidence among Americans declined to the lowest level this year.

Worst Quarter

Concern that Spanish banks may fail and Greece would leave the 17-nation euro zone drove the S&P 500 down as much as 9.9 percent from this year’s high in April. Even after this month’s rebound, the benchmark gauge lost 3.3 percent since the end of March, the worst quarter since the three months ended September. The Dow slumped 2.5 percent for the quarter.

The S&P 500 Energy Index jumped 4.8 percent, the biggest weekly increase since December, as oil soared the most in more than three years on June 29. The gain in crude may accelerate after the European Union’s ban on the purchase, transport, financing and insurance of Iranian crude starts on July 1, a Bloomberg survey showed. Chevron Corp., the second-largest U.S. energy producer, advanced 5 percent to $105.50. Bigger rival Exxon Mobil Corp. rose 4.2 percent to $85.57.

Homebuilders Rally

An S&P gauge of homebuilders rallied 13 percent to the highest level since 2008 as reports showed sales of new homes increased to a two-year high and housing prices dropped at the slowest pace in more than a year. Lennar (LEN) climbed 17 percent to $30.91 after a tax benefit and improving demand fueled a surge in its fiscal second-quarter profit. KB Home (KBH) soared 20 percent to $9.80 after reporting a narrower quarterly loss.

Tenet, the third-biggest U.S. hospital chain, climbed 7.2 percent to $5.24. The Supreme Court, voting 5-4, largely left intact the Affordable Care Act’s transformation of the health system, saying Congress has the power to make Americans get insurance or pay a penalty. They also let stand a plan to expand Medicaid by about 16 million people, though the justices limited the power to punish states that don’t comply. The new regulations may arrest a rising tide of uninsured patients unable to pay their medical bills.

Commercial carriers fell in the face of the law’s new regulations. WellPoint Inc. (WLP), the second-largest U.S. health insurer, dropped 8.6 percent to $63.79.

Financial Shares

Optimism over Europe’s efforts to tame the debt crisis helped buoy financial shares, pushing the S&P 500 index (SPX) of banks, brokerages and insurers up 2.2 percent. Bank of America Corp. (BAC) increased 3 percent to $8.18 while Morgan Stanley rose 3.2 percent to $14.59.

Genworth Financial Inc. (GNW), the life insurer and mortgage guarantor, surged 9.5 percent to $5.66 as hedge fund Highfields Capital Management LP said it is in talks with management about increasing the value of its stake.

JPMorgan Chase & Co. (JPM) fell 0.7 percent to $35.73. The lender’s losses from credit derivatives may eventually total as much as $9 billion, exceeding the firm’s initial estimate, the New York Times reported.

Constellation Brands Inc. (STZ) had the biggest gain in the S&P 500, soaring 40 percent to $27.06. The company agreed to buy the other half of its Crown Imports joint venture with Grupo Modelo SAB for about $1.85 billion, becoming the sole U.S. importer of top-selling Corona beer.

News Corp. (NWSA)

News Corp. climbed 9.5 percent to $22.29. The company announced plans to split into two publicly traded entities focused on publishing and entertainment after shareholder pressure prompted the biggest reorganization since Rupert Murdoch built the media empire.

Europe’s debt crisis and a slowdown in global growth may have taken a toll on corporate earnings. Profits at S&P 500 companies are forecast to show a drop of 1.8 percent in the second quarter, according to analyst estimates compiled by Bloomberg.

Earnings pessimism reached levels last seen during the financial crisis. Ninety-four corporations issued profit projections that trailed analyst estimates during the 30 days through June 29, or 3.4 times the number of those that exceeded them. The ratio was the highest since March 2009, data compiled by Bloomberg show.

Research In Motion plunged 25 percent, the most since 2008, to $7.39 after posting a loss and delaying the next BlackBerry operating system. The smartphone maker also said it would cut 5,000 jobs.

Nike, Facebook

Nike, the world’s largest sporting-goods company, tumbled 12 percent to $87.78 after fourth-quarter profit unexpectedly declined for the first time since 2009, hurt by an increase in marketing and labor costs.

O’Reilly Automotive Inc. (ORLY) fell the most in the S&P 500, sinking 14 percent to $83.77. The retailer of auto parts, tools and accessories said sales growth was slower than expected and second-quarter profit will be on the lower end of the company’s forecast range.

Facebook Inc. (FB) slid 5.9 percent to $31.10 as analysts said the stock is worth no more than its debut price of $38. Analysts including those at lead underwriter Morgan Stanley (MS) have an average 12-month price estimate of $37.52 on the social-network operator, according to data compiled by Bloomberg. Facebook has lost 18 percent since its May initial public offering on concern the stock is overvalued and the company will struggle to attract users.

To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net

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