U.S. Stocks Complete Biggest Back-to-Back Gain Since November

U.S. stocks rose, capping the market’s biggest two-week rally since November, after New York- area manufacturing expanded and Europe’s efforts to contain its debt crisis bolstered confidence in the global economy.

Caterpillar Inc. and United Technologies Corp. each advanced at least 4.4 percent this week. Apple Inc. jumped 8.1 percent on optimism over the new version of its iPhone. Intel Corp. climbed 3.7 percent to pace gains in semiconductor stocks after Taiwan Semiconductor Manufacturing Co., the world’s largest contract maker of chips, boosted its market forecast.

The S&P 500 rose 2.4 percent over the past five days to 1,117.51, adding to the previous week’s 2.5 percent advance. The Dow Jones Industrial Average advanced 239.57 points, or 2.4 percent, to 10,450.64. Both measures erased losses for the year.

“The recovery is on track,” said Philip Orlando, the New York-based chief equity market strategist at Federated Investors, which manages about $400 billion. “Investors are now thinking that the global pressures will not be sufficient to derail the economic rebound. The stock market was significantly undervalued. The trend is higher.”

The S&P 500, the U.S. equity benchmark, fell as much as 14 percent from a 19-month high in April on concern that widening budget deficits in Europe would curtail global growth. The decline drove the S&P 500’s price-to-earnings ratio to about 15.2 earlier this month, the cheapest valuation since June 2009. The index rebounded 6.4 percent from a seven-month low on June 7 amid speculation the economic rebound will continue.

‘Relief Rally’

Gains in U.S. equities came as the euro rallied 2.3 percent to almost $1.24, its biggest weekly advance against the dollar in more than a year. Increased demand at a Spanish bond sale and an agreement by European Union leaders to disclose how banks perform on stress tests bolstered confidence that European debt crisis is contained

“You’ve got a relief rally,” said Kevin Rendino, who manages about $11 billion in Plainsboro, New Jersey, for BlackRock Inc., the world’s largest asset manager. “Valuations are incredibly attractive, companies are doing well. We applied the right medicine. The economy continues to recover.”

All but four of 57 stocks in the S&P 500 Industrials Index gained after the Federal Reserve Bank of New York’s general economic index increased to 19.6, an 11th-straight month of growth.

The report helped trigger a 2.4 percent rally on June 15, the biggest gain of the week, which took the S&P 500 above its 200-day moving average for the first time in more than a month. The index remained above the trend line for the rest of the week, a bullish sign to investors who make trading decisions based on chart patterns.

Caterpillar, Boeing

Caterpillar, the world’s largest maker of bulldozers, surged 9.3 percent to $65.85, leading the gains in the Dow average. United Technologies, the maker of Pratt & Whitney jet engines and Otis elevators, rose 4.5 percent to $69.18.

Boeing Co. gained 4 percent to $67.96. The maker of world’s most widely flown jetliner plans to boost production of its best-selling 737 jet by an additional 3 percent, the second increase in as many months as airlines recover from the recession and add to the plane’s $138 billion order backlog.

Semiconductor companies had the biggest gain in the S&P 500 among 24 industries, climbing 4.8 percent as a group.

Chipmaker Demand

Taiwan Semiconductor Manufacturing said global sales will increase almost 30 percent in 2010, up from its April forecast of 22 percent growth. Intel, the world’s largest chipmaker, advanced 3.7 percent to $21.40. Teradyne Inc. rose 12 percent to $11.80. Micron Technology Inc. jumped 12 percent to $10.

Apple rallied 8.1 percent to $274.07. Piper Jaffray Cos. analyst Gene Munster raised his 2010 earnings estimate to $13.07 a share from $12.90, citing sales of the company’s new iPhone. He also boosted his forecasts for iPhone sales in the quarters ending in June and September to 9.5 million each. His previous estimates were for sales of 8.5 million and 9 million, respectively. Apple’s share-price estimate was also increased to $348 from $330 at Piper Jaffray.

“Technology companies have great business models and they generate a lot of cash,” said Michael Levine, a money manager at New York-based OppenheimerFunds Inc., which oversees about $165 billion. “The replacement cycle in conjunction with better corporate profits will drive higher spending.”

M&A Talks

M&T Bank Corp. rose the most in the S&P 500, jumping 16 percent to $90.71, on takeover speculation. Banco Santander SA said it has made no decision on whether to combine its business with of the U.S. bank. Matias Inciarte, the Spanish lender’s third vice-chairman, said “it’s been said” that there have been conversations between the two banks.

GameStop Corp. and Best Buy Co. had the two biggest declines in the S&P 500, each dropping at least 8.1 percent. Best Buy, the world’s largest consumer-electronics retailer, reported first-quarter profit excluding some items of 36 cents a share, missing the average analyst estimate in a Bloomberg survey by 28 percent. The company said it plans to let customers trade in their used video games at more than 1,000 U.S. stores to grab sales from competitors.

A gauge of 12 homebuilders in S&P indexes declined 3.1 percent. Toll Brothers Inc., the largest U.S. luxury homebuilder, said deposits have been running 20 percent behind the year-earlier period in the past three weeks as the Gulf of Mexico oil spill and European debt crisis hurt buyer confidence.

Toll Brothers fell 4.7 percent to $17.95, a third-straight weekly loss. KB Home declined 5.2 percent to $12.30. D.R. Horton Inc. slid 4.5 percent to $10.75.

FedEx Slips

FedEx Corp. dropped 2.4 percent to $78.70. The world’s largest air-cargo carrier forecast annual profit that trailed analysts’ estimates, citing rising health-care and pension costs in a “moderate” economic recovery.

Quarterly reports scheduled for next week include Adobe Systems Inc., the world’s biggest maker of graphic-design programs, and Oracle Corp., the world’s second-largest software maker. Walgreen Co., Carnival Corp., Nike Inc., Bed Bath & Beyond Inc., Lennar Corp., ConAgra Foods Inc. and H&R Block Inc. will also report.

Sales of previously-owned homes rose in May while those of new houses fell, reflecting the timing of a tax credit, and a rise in business spending signaled factories are leading the rebound, economists said before reports next week.

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