Most U.S. stocks advanced, erasing an early decline, as the House approved a spending bill that will avert a government shutdown and on investors’ optimism about higher-than-estimated corporate earnings.
Supervalu Inc. surged 17 percent for the top gain in the Standard & Poor’s 500 Index after the owner of Save-A-Lot and Albertsons grocery stores projected full-year profit that beat projections. Halliburton Co. and Anadarko Petroleum Corp. added more than 1.3 percent as oil rose on reports that Saudi Arabia reduced output this month. JPMorgan Chase & Co. and Wells Fargo & Co. dropped at least 1.7 percent as Goldman Sachs Group Inc. cut its recommendation on financial shares.
Almost four stocks gained for every three that fell on U.S. exchanges at 4 p.m. in New York. The S&P 500 increased less than 0.1 percent to 1,314.52, erasing an earlier decline of as much as 0.9 percent. The Dow Jones Industrial Average advanced 14.16 points, or 0.1 percent, to 12,285.15 today.
“The government is still running,” said Richard Sichel, who oversees $1.6 billion as chief investment officer at Philadelphia Trust Co. “That’s a sigh of relief for the market. Investors are focusing on the good economic fundamentals and solid corporate earnings. Yes, we do have global issues, European debt concern and higher commodities prices. Still, the stock market is very resilient.”
The benchmark gauge yesterday halted a four-day slump, its longest since November, as a Federal Reserve report fueled optimism about the economy. The index, which has soared as much as 99 percent since March 2009, last week rose to near the highest closing level for the rally, according to data compiled by Bloomberg. The S&P 500 advanced to 1,335.54 on April 6, or 7.47 points below the high on Feb. 18.
Stocks reversed earlier losses as the House approved spending legislation to cut $38.5 billion and avert a government shutdown. The Senate plans to pass the measure later today, bringing this year’s first major budget fight to a close. The House voted in favor of the measure 260-167. A stopgap bill currently funding the government expires tonight, and without approval by Congress and President Barack Obama, federal agencies would begin to shut down.
The stock market has been resilient as the economy faces challenges in emerging from the deepest recession since the 1930s, said economist Edward Yardeni.
The S&P 500 has fallen 2.1 percent from this year’s high amid unrest in the Middle East and North Africa, a nuclear crisis in Japan and European debt concern. Still, the gauge has risen 4.5 percent in 2011, extending last year’s 13 percent gain, amid government stimulus measures and higher-than-estimated corporate earnings.
“Profits have been extraordinary and that has gone straight into the corporate cash flow,” said Yardeni, president of Yardeni Research Inc., in an interview today on Bloomberg Television’s “Surveillance Midday” with Tom Keene. “When you look at corporate profits, you have to be impressed at how well companies are being managed in the face of all the adversities. That feeds into the resilience in the markets.”
Earnings for S&P 500 companies rose 12 percent in the first quarter and will increase 17 percent this year, according to analyst estimates compiled by Bloomberg.
Shares of consumer-staples companies had the biggest gain in the S&P 500 within 10 industries, rising 0.6 percent.
SuperValu soared 17 percent to $10.61 after fourth-quarter earnings topped estimates and the company forecast fiscal year 2012 profit excluding some items of at least $1.20 a share. On average, the analysts surveyed by Bloomberg estimated profit of $1.15 a share.
J.B. Hunt Transport Services Inc. climbed 6.6 percent to $47.53 to lead a rally in the Dow Jones Transportation Average as earnings topped estimates. The trucking company reported first-quarter earnings of 40 cents a share, beating the average analyst estimate of 38 cents a share, according to Bloomberg data.
Energy shares had the second-biggest gain of 10 S&P 500 groups. Halliburton gained 1.4 percent to $46.14. Anadarko rose 1.3 percent to $79.38.
Consumer confidence in the U.S. rose for a third straight week as improving job prospects made Americans less pessimistic about the economy and their finances. The Bloomberg Consumer Comfort Index climbed to minus 43 in the period to April 10, the best showing since the end of February, following a minus 44.5 reading the prior week.
Earlier declines came after more Americans unexpectedly filed first-time claims for unemployment insurance last week, reflecting greater-than-normal volatility at the end of the quarter. Applications for jobless benefits rose 27,000 in the week ended April 9 to 412,000, the most in two months, Labor Department figures showed. Economists projected claims would be little changed at 380,000, according to the median estimate in a Bloomberg News survey.
The S&P 500 will rise to 1,525 over the next 12 months as the U.S. economy expands and corporate sales grow, Goldman Sachs strategist David Kostin wrote in a note dated yesterday. He favors stocks of energy and technology companies, while reducing financials to “neutral” from “overweight.” Kostin also narrowed the size of Goldman’s health care “underweight” recommendation.
The KBW Bank Index slumped 1.1 percent as 18 of its 24 stocks retreated. JPMorgan dropped 2.8 percent to $44.97, while Wells Fargo fell 1.7 percent to $30.15.
Goldman Sachs slumped 2.7 percent to $155.79. Senator Carl Levin requested a federal probe of the bank’s dealings in mortgage securities. Levin, a Democrat from Michigan who’s the chairman of the Senate panel that investigated the financial crisis, said he wants the Justice Department and the Securities and Exchange Commission to examine whether Goldman violated the law by misleading clients who bought collateralized debt obligations without knowing the firm was betting they would fall in value.
First Solar Inc. slid 2.7 percent to $140.90. The company said yesterday that Bruce Sohn will step down as president of operations at the end of this month. Sohn may eventually pursue work as chief executive of another solar company, an analyst said, after a two-year non-compete agreement expires.
Investors should buy bullish U.S. stock options because the VIX, or Chicago Board Options Exchange Volatility Index, falling below 20 indicates that equities are poised to rally to multiyear highs,’’ MKM Partners LP said.
Capping Potential Profit
Jim Strugger, a derivatives strategist at MKM, recommended buying May $133 call options on the SPDR S&P 500 exchange-traded fund while selling twice as many May $137 calls in a strategy known as a ratio call spread, which cuts the trade’s cost while capping potential profit. The ETF rose 0.1 percent to $131.56 as the VIX lost 3.8 percent to 16.27.
“The 20 level for VIX represents an important risk threshold,” Strugger wrote in a note yesterday. “Above 20, we turn incrementally more cautious, anticipating escalation toward a volatility peak. On the other hand, we interpret a decline below that level as the beginning of a troughing phase that is coincident with a period of equity outperformance.”
Lower VIX levels presage that stocks will climb to new highs because the VIX remaining below 20 for most of the period from early December to late February coincided with the S&P 500 rallying 14 percent to a 32-month high, the Stamford, Connecticut-based strategist wrote.
The VIX, which measures the cost of using options as insurance against stock-market declines, has averaged 20.37 in its two-decade lifetime. It has fallen 45 percent from an eight-month high of 29.40 on March 16, the week after the Japanese earthquake, as takeovers and the improving U.S. economy bolstered optimism that the global recovery can be sustained.