U.S. stocks rallied, sending the Standard & Poor’s 500 Index to the highest level since May, after a report showed payrolls climbed more than forecast even as the jobless rate unexpectedly rose to a five-month high.
Bank of America Corp., Alcoa Inc. (AA) and Caterpillar (CAT) Inc. increased at least 2.2 percent. Knight Capital Group Inc. (KCG) surged 57 percent, after tumbling 75 percent in two days, as it secured a funding lifeline and more customers resumed routing orders. Kraft Foods Inc. (KFT) and Procter & Gamble Co. (PG) advanced more than 3.1 percent after reporting better-than-estimated earnings.
About nine stocks gained for every two that fell on U.S. exchanges at 4 p.m. in New York. The S&P 500 rose 1.9 percent to 1,390.99, after falling 1.5 percent in four days. It rose a fourth week, the longest streak since March. (SPX) The Dow Jones Industrial Average added 217.29 points, or 1.7 percent, to 13,096.17. Volume for exchange-listed stocks in the U.S. was 6.8 billion shares, or about in line with the three-month average.
“The jobs report is neither here nor there,” said Mark Luschini, chief investment strategist for Philadelphia-based Janney Montgomery Scott LLC, which manages about $54 billion. “There’s not enough evidence for the Fed to act imminently. At the same time, the numbers are not so good, which means that Fed could still do something. On balance, the number was decent.”
Equities gained as payrolls last month increased 163,000 following a revised 64,000 rise in June. Economists projected a gain of 100,000. Unemployment rose to 8.3 percent. The Institute for Supply Management’s index of U.S. non-manufacturing businesses, which covers about 90 percent of the economy, rose to 52.6 in July, beating estimates.
Uneven hiring may hold back consumer spending, the biggest part of the economy, as a global slowdown and impending U.S. tax changes weigh on businesses. Job cuts at companies from Morgan Stanley to Cisco Systems Inc. mean unemployment may remain elevated, one reason the Federal Reserve this week said it is prepared to take new steps if needed to boost growth.
“What I like about the jobs report is that it allows people like me, who have been patient with the domestic economy, to continue to be patient,” said Michael Shaoul, chairman of Marketfield Asset Management in New York, which oversees about $2.7 billion. “This alone won’t change the Fed’s mind.”
Stocks fell over the last four days as Fed Chairman Ben S. Bernanke and European Central Bank President Mario Draghi failed to reassure investors on immediate efforts to bolster growth. Members of German Chancellor Angela Merkel’s coalition parties signaled acceptance of the ECB’s plan to buy government bonds.
The Morgan Stanley Cyclical Index of companies most-tied to growth jumped 2.5 percent. Bank of America climbed 3.5 percent to $7.43. Alcoa rose 2.3 percent to $8.37. Caterpillar added 2.3 percent to $85.02. The Chicago Board Options Exchange Volatility Index fell 11 percent, the most since June 29, to 15.64.
Investors also monitored the latest developments with Knight Capital. The company, stung by a software malfunction that triggered a $440 million trading loss, surged 57 percent to $4.05.
The firm told brokers it has money for today after it received short-term financing, according to a person familiar with the matter who requested anonymity because the conversations were private. TD Ameritrade Holding Corp. and Scottrade Inc., which sent trades elsewhere for execution after Knight’s software bug on Aug. 1 roiled markets, said they were routing orders to the firm again.
As the company opened its books to potential saviors, people with knowledge of the matter said KKR & Co., TPG Capital and Silver Lake were among buyout firms that had an initial interest -- while one said chances of a private-equity deal are small.
The market maker has until Aug. 6 to complete a transaction in which Goldman Sachs Group Inc. (GS) will take over trades that saddled Knight with a $440 million loss, a person familiar with the matter said. U.S. stock trades settle three sessions after they are made.
“I seriously doubt they will go out of business,” Kenneth Pasternak, who co-founded Knight in 1995, said in a phone interview from his Ridgefield Park, New Jersey, private equity firm Kabr Real Estate Investment. “I just hope they can maintain the innovation. My fear is they will be bought by some big bank and become consumed by the CYA behavior and lose their edge.”
Some earnings reports also helped drive stocks higher. About 73 percent of S&P 500 companies which reported quarterly results have beaten estimates, according to data compiled by Bloomberg. Sales missed estimates at 59 percent of companies.
Kraft rallied 4 percent to $40.51. The producer of its self-named macaroni and cheese and Cadbury chocolates boosted prices to help recoup higher costs for commodities and mitigate the effect of the stronger dollar that reduced the value of sales overseas.
P&G gained 3.1 percent to $65.50. Chief Executive Officer Robert McDonald is working to prove his pricing and plan to save $10 billion by 2016 through cutting jobs and marketing will be enough to improve results.
LinkedIn Corp. (LNKD) added 16 percent to $108.51. The biggest professional-networking website forecast sales that topped estimates as it adds users and makes more money from recruitment services. Chief Executive Officer Jeff Weiner has lured subscribers and increased revenue from hiring services, the largest of the company’s three main product lines.
The first among social media companies to hold initial share sales since early 2011, LinkedIn has done a better job than consumer-focused peers Facebook (FB) Inc. and Zynga Inc. (ZNGA) at wringing sales from a growing user base.
Facebook rose 5.2 percent, its biggest gain since June 15, to $21.09. The shares yesterday reached a record low, tumbling 47 percent since the company went public in May. The world’s largest social-networking service last week reported earnings that showed slowing growth.
American International Group Inc. (AIG) added 1.6 percent to $31.34. The insurer majority-owned by the U.S. government posted its third straight profitable quarter as results improved at the Chartis property-casualty and SunAmerica life units. The U.S. Treasury Department has begun an offering of $4.5 billion in AIG shares, and the insurer plans to buy back as much as $3 billion of the stock.
NYSE Euronext (NYX) rose 1.3 percent to $24.91. The biggest U.S. exchange operator reported second-quarter earnings that beat estimates and cut its cost guidance for the year.
Morgan Stanley (MS) rose 5.8 percent to $13.78. It should cut its fixed-income trading business in half and use the freed-up capital to buy back a quarter of its shares, said Ed Najarian, an analyst at International Strategy & Investment Group Inc.
The firm should cut its so-called risk-weighted assets by $150 billion under Basel III rules, about twice the reduction it currently plans, Najarian estimated yesterday in a research note. The larger reduction and buybacks could double Morgan Stanley’s stock price to about $27, he wrote.
“With Morgan Stanley stock languishing at about 50 percent of tangible book value, and down more than 50 percent over the past three years, we think management needs to potentially embark upon a more aggressive strategic plan in an effort to create value for shareholders,” Najarian wrote.
Boeing Co. (BA) rose 1.1 percent to $72.81. It reached agreements to sell 94 of its single-aisle 737 planes to Asian carriers, including a Singapore Airlines Ltd. unit that has an all-Airbus SAS fleet. Separately, it received a $460 million award from the National Aeronautics and Space Administration to develop spacecraft capable of carrying astronauts.
Citizens Republic Bancorp Inc. (CRBC) jumped 9.1 percent to $19.24. The Michigan lender that has yet to repay a $300 million U.S. government bailout is soliciting takeover bids from competitors, said three people with knowledge of the matter.
Activision Blizzard Inc. (ATVI) slid 5.5 percent to $11.12. The maker of the “Call of Duty” video game fell as the Financial Times reported that majority owner Vivendi SA (VIV) hasn’t attracted interest for its planned sale of its stake in the company.
Momenta Pharmaceuticals Inc. (MNTA) dropped 2.5 percent to $13.77. The company is unlikely to win its patent-infringement case over copies of the blood-thinner Lovenox, so Watson Pharmaceutics Inc. can sell its version until a trial is held, a U.S. appeals court ruled today.
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