S&P 500 Erases Weekly Loss on JPMorgan Rally, China

U.S. stocks rallied, erasing a weekly loss for the Standard & Poor’s 500 Index, as JPMorgan Chase & Co. (JPM) jumped after reporting earnings and speculation grew that China will boost stimulus measures.

JPMorgan surged 6 percent to lead gains in the Dow Jones Industrial Average after Chief Executive Officer Jamie Dimon said the bank will still likely have record earnings this year even after reporting a $4.4 billion trading loss from its chief investment office in the second quarter. Wells Fargo & Co. climbed 3.2 percent after reporting a 17 percent rise in profit. Phillips 66 (PSX) climbed 5.9 percent after Warren Buffett said his Berkshire Hathaway Inc. has invested in the refiner.

The S&P 500 gained 1.7 percent to 1,356.78 at 4 p.m. New York time and advanced 0.2 percent for the week. The index had fallen for six consecutive days, dropping 2.9 percent amid concern over corporate earnings. The Dow added 203.82 points, or 1.6 percent, to 12,777.09 today. Trading in exchange-listed stocks in the U.S. was 5.48 billion shares, 18 percent below the three-month average.

“Six straight days down, the market is looking for something better,” Tom Wirth, who helps manage $1.6 billion as senior investment officer for Chemung Canal Trust Co., based in Elmira, New York, said in a telephone interview. “You started with China and JPMorgan added to it. The confidence is that the trading loss is 95 percent of the way behind us. The company is on the upswing.”

Photographer: Jin Lee/Bloomberg

Traders work on the floor of the New York Stock Exchange. Close

Traders work on the floor of the New York Stock Exchange.

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Photographer: Jin Lee/Bloomberg

Traders work on the floor of the New York Stock Exchange.

Slowdown Concern

Equities retreated yesterday as concern about a slowdown in the global economic recovery and American corporate earnings overshadowed a rally in Procter & Gamble Co. (PG) and homebuilders. Four out of the six S&P 500 companies that reported results this week beat analysts’ earnings estimates while one missed, data compiled by Bloomberg show. Overall, profits probably decreased 2.1 percent in the second quarter, the first drop in almost three years, according to a Bloomberg survey of analysts.

China’s growth slowed for a sixth quarter to the weakest pace since the global financial crisis, putting pressure on Premier Wen Jiabao to boost stimulus to secure a second-half economic rebound. Gross domestic product expanded 7.6 percent last quarter from a year earlier, the National Bureau of Statistics said today. The pace, a three-year low, compares with an 8.1 percent gain in the previous period and the 7.7 percent median forecast of economists.

Monetary Stimulus

Concern about Europe’s debt crisis and a global slowdown drove the S&P 500 down as much as 9.9 percent from a four-year high in April through June 1. The index has since rebounded 6.2 percent as central banks in Europe and China cut interest rates and the Federal Reserve signaled it will take more actions if the labor market doesn’t show “sustained improvement.”

The S&P 500 is trading at 13.7 times reported 12-month earnings, 16 percent below the average multiple of 16.4 since 1954, according to data compiled by Bloomberg. Analysts predict S&P 500 earnings will increase 6.4 percent this year. The S&P 500’s earnings yield is 7.31 percent, close to the highest on record when compared with the 10-year Treasury rate, according to Bloomberg data going back to 1962.

“There is massive value in this market,” Randy Bateman, chief investment officer of Huntington Asset Management in Columbus, Ohio, said in a telephone interview. His firm oversees $14 billion. “It’s going to be the vacillation between the perception of good value in the market and the concern over the economy.”

Consumer Confidence

Equities maintained their gains even after the Thomson Reuters/University of Michigan index of consumer sentiment unexpectedly declined in July to the lowest level this year. A Labor Department report showed wholesale prices unexpectedly rose in June for the first time in four months, reflecting an increase in food costs.

All 10 industry groups in the S&P 500 gained as financials jumped the most, rising 2.8 percent. The Morgan Stanley Cyclical Index of companies most-tied to the economy rallied 2.1 percent, after declining 0.9 percent yesterday. The KBW Bank Index soared 3.3 percent, the most since March, with all of its 24 stocks rising.

JPMorgan surged 6 percent to $36.07 for the biggest advance in both the Dow and the S&P 500. Net income fell to $1.21 a share from $1.27 a year earlier and the lender also restated its first-quarter earnings to show net income was $4.92 billion, rather than the $5.38 billion previously reported.

Dimon Speaks

Dimon said he hopes the company can buy back stock in the fourth quarter of 2012 after it completes a review of trading losses in the chief investment office. By capping the size of the potential loss and revamping management of the businesses responsible, Dimon may help restore investor confidence after the bank’s market value dropped $39.7 billion since April 5, when Bloomberg News first reported that the company had amassed an illiquid book of credit derivatives in its chief investment office.

Wells Fargo (WFC) gained 3.2 percent to $33.91. Net income advanced to 82 cents a share on strength in mortgage banking and a drop in expenses. The average estimate of analysts surveyed by Bloomberg, excluding some special items, was 81 cents a share.

Other lenders advanced. Bank of America Corp. (BAC) increased 4.6 percent to $7.82. Citigroup Inc. (C) climbed 5.4 percent to $26.65.

“The degree to which our banking system has come back, particularly compared to the European banks, is dramatic,” Buffett, the billionaire chairman of Berkshire, said today on Bloomberg Television’s “In the Loop With Betty Liu” in an interview from the Allen & Co. media conference in Sun Valley, Idaho. “Our banking system is in terrific shape and that can’t be said for banks around the world and it couldn’t be said for our banks four years ago.”

Phillips 66 rallied 5.9 percent to $34.94. Berkshire has invested in the refining business that was spun off by ConocoPhillips this year, Buffett said.

Homebuilders Gain

An S&P index of homebuilders climbed 1.1 percent. D.R. Horton Inc. advanced 1.8 percent to $18.70 after MKM Partners boosted the stock to buy from neutral, citing accelerating growth in new home sales.

P&G, the world’s largest consumer-products company, climbed 2.2 percent to $65.09. Board members are dissatisfied with Chief Executive Officer Robert McDonald’s performance and are discussing a possible leadership change, according to people familiar with the situation. P&G jumped 3.8 percent yesterday after Federal Trade Commission cleared William Ackman’s Pershing Square Capital Management LP to buy a stake, sparking speculation that he may urge the company for more asset sales.

Lexmark International Inc. (LXK) slumped 16 percent to $20.36 for the biggest retreat in the S&P 500. The maker of laser and inkjet printers said second-quarter sales and profit would be lower than it had expected due to weak demand in Europe and unfavorable exchange rates.

Hewlett-Packard Co. (HPQ), a rival in the printer market, slipped 1.9 percent to $18.98 for the only loss in the Dow.

To contact the reporters on this story: Lu Wang in New York at lwang8@bloomberg.net; Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net

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

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