U.S. stocks rose, extending a second straight weekly advance, as Egyptian President Hosni Mubarak’s resignation and a jump in consumer confidence to an eight-month high bolstered optimism in the global economic recovery.
Caterpillar Inc., JPMorgan Chase & Co. and Bank of America Corp. climbed at least 1.9 percent to lead the Dow Jones Industrial Average higher. ConocoPhillips added 2.1 percent on plans to raise its dividend and buy back as much as $10 billion in stock. Kraft Foods Inc. dropped 1.5 percent after lowering its forecast because of rising commodity costs. An exchange-traded fund tracking Egyptian equities rallied 4.5 percent.
The Standard & Poor’s 500 Index advanced 0.6 percent to 1,329.15 at 4 p.m. in New York, its highest level since June 2008. The benchmark gauge rose 1.4 percent this week. The Dow gained 43.97 points, or 0.4 percent, to 12,273.26. The Chicago Board Options Exchange Volatility Index, which measures the cost of using options as insurance against declines in the S&P 500, fell 2.5 percent to 15.69, a four-week low.
“As some of the uncertainty clears in Egypt, people can focus on fundamentals,” said Peter Sorrentino, who helps oversee $14.4 billion at Huntington Asset Advisors in Cincinnati. “We’ve had a fair amount of pretty good economic reports, including consumer confidence. Unfortunately, the optimism was recently disrupted by geopolitical concern. We’ll see how that plays out. There’s enough momentum in the U.S. economy right now.”
The S&P 500 has risen 5.7 percent this year as better-than-forecast economic data and company earnings boosted confidence in the economic recovery. Earnings at 74 percent of the 348 companies in the S&P 500 that reported results since Jan. 10 posted per-share profit that beat analyst estimates, according to data compiled by Bloomberg.
Benchmark indexes began erasing an early slide today after the Thomson Reuters/University of Michigan preliminary index of consumer sentiment for the month climbed to 75.1. Stocks extended gains as Mubarak bowed to the demands of protesters that have occupied central Cairo for the past three weeks demanding an end to his 30-year rule. He handed power to the nation’s military.
“Mubarak has decided to relinquish the office of the presidency,” said Vice President Omar Suleiman in a statement on state television today. “He has instructed the Supreme Council of the armed forces to take over the affairs of the country.”
Mubarak left Cairo for the Egyptian resort town of Sharm El-Sheikh, state television reported today before the announcement. His resignation opens a new phase in a crisis that was sparked by the ouster of Tunisian President Zine El Abidine Ben Ali on Jan. 14 and is rippling through a region that holds more than 50 percent of the world’s oil reserves.
“The characteristics of Egypt and Tunisia are common throughout the region -- authoritarian rulers, high unemployment, poverty and a young populace,” said Howard Ward, a money manager at Mario Gabelli’s Gamco Investors Inc., which oversees about $33 billion in Rye, New York. “Tunisia seemed to embolden Egypt. It’s possible that Egypt will embolden Bahrain or Iran, among others. High food prices could be the trigger. There is nothing like hunger to fuel a restless society.”
The Market Vectors Egypt Index ETF, an exchange-traded fund that holds Egyptian shares, climbed 4.5 percent to $18.60.
Caterpillar rose 2.9 percent to $103.54, while JPMorgan Chase gained 2.3 percent to $46.57 and Bank of America advanced 1.9 percent to $14.77.
ConocoPhillips rose 2.1 percent to $71.58 after it said it is increasing its quarterly dividend to 66 cents a share from 55 cents, and has authorized the repurchase of as much as $10 billion in shares.
MGIC Investment Corp. and Radian Group Inc. led mortgage insurers higher after U.S. Treasury Secretary Timothy F. Geithner called for limiting the role of government-backed competitors. MGIC, the largest private U.S. mortgage insurer, jumped 9.6 percent to $10.05. No. 2 Radian, based in Philadelphia, surged 13 percent, to $8.03.
Ford Motor Co. gained 2.7 percent to $16.38. The second-largest U.S. automaker will redeem $2.98 billion of convertible notes in March as the company works to gain an investment-grade credit rating.
“The bottom line is that the market has support,” said Joseph Keating, chief investment officer at CenterState Wealth Management, who manages $1 billion in Birmingham, Alabama. “Even if we see a pullback on global concerns, there are better measures in the U.S. The outlook for stocks comes down to earnings. The outlook for earnings comes down to the economy. There’s both consumer and business confidence. That shows me the recovery is sustainable.”
Kraft dropped 1.5 percent to $30.66. The world’s second-largest food company lowered its full-year earnings forecasts because of rising commodity costs. Profit excluding certain items such as integration costs will increase 11 percent to 13 percent. That’s down from the company’s November projection of a rise in the “mid-teens.”
Expedia Inc. tumbled 17 percent to $21.31. The online travel company reported fourth-quarter earnings, excluding some items, of 32 cents a share, missing the average analyst estimate of 36 cents, Bloomberg data show.
JPMorgan’s Thomas Lee said the risk of inflation means investors should buy energy and material stocks, which historically perform better as prices rise, while utilities and telecommunication companies lag behind.
A team led by Lee, JPMorgan’s chief U.S. equity strategist, found that in periods of higher prices for goods and services in nine countries, energy companies and materials stocks beat their benchmarks by an average of 5 percent and 4 percent, respectively, in six months. Utilities and telecommunications were the worst-performing groups, as accelerating inflation detracts from the groups with the highest dividend yields, according to the New York-based firm.
Inflation forecasts have increased around the world as a United Nations index of 55 food commodities climbed to an all-time high in January, the seventh straight monthly increase. Credit Suisse Group AG cut its weighting on global emerging-market stocks to 10 percent “overweight” from 25 percent on a two-month view as inflation accelerates, analyst Andrew Garthwaite wrote in a report dated yesterday.
“The greatest concern in our view remains inflation and, in particular, the fact that monetary policy remains too easy in many emerging markets,” Lee wrote in a note dated today. “The rise in inflationary pressures suggests sticking with cyclicals for now.”