U.S. Stocks Advance as EU Considers $1.3 Trillion Rescue Fund

U.S. Stocks Extend Losses as Merkel Cancels Speech
A trader works on the floor of the New York Stock Exchange on Oct. 18, 2011. Photographer: Scott Eells/Bloomberg

U.S. stocks rose, recovering from earlier losses, as European governments considered deploying $1.3 trillion in funds to tame the sovereign debt crisis.

Financial shares gained the most among 10 industries in the Standard & Poor’s 500 Index, adding 1.8 percent as a group. Fifth Third Bancorp and KeyCorp rose at least 6.9 percent as earnings topped projections. Philip Morris International Inc. rallied 3.3 percent as higher shipments and increased cigarette prices in Asia helped the company beat profit estimates. EBay Inc. declined 3.1 percent after the online marketplace forecast sales and income that missed some forecasts.

The S&P 500 rose 0.5 percent to 1,215.39 at 4 p.m. New York time, after falling as much as 1 percent and rallying 0.8 percent earlier today. The Dow Jones Industrial Average climbed 37.16 points, or 0.3 percent, to 11,541.78.

“This whole situation makes doing my job, as a guy who’s trying to buy stocks based on a long-term view, almost laughably difficult,” Brian Barish, who helps oversee about $8 billion as Denver-based president of Cambiar Investors LLC, said in a telephone interview. “The market is hypersensitive as to whether or not a plan will emerge that will stabilize Europe.”

The S&P 500 rose from the threshold of a bear market early this month amid optimism over earnings and steps by European leaders to support banks. The rebound brought the gauge close to the top of a price range between 1,074.77 and 1,230.71, where it’s traded for more than two months. The S&P 500 briefly climbed above that range on Oct. 18, reaching 1,233.10.

Rescue Fund

Stocks rebounded today as two people familiar with the matter said Europe may combine the temporary and permanent rescue funds to unleash as much as 940 billion euros to fight the crisis. German Chancellor Angela Merkel and French President Nicolas Sarkozy said in a joint statement they want euro-region leaders to agree on a “comprehensive and ambitious” plan as the EU plans another debt summit on Oct. 26.

“Europe needs some sort of TARP-like facility to backstop the banks to prevent contagion,” Hank Smith, chief investment officer at Haverford Trust Co. in Radnor, Pennsylvania, said in a telephone interview. Smith’s firm manages about $6.1 billion. “It was difficult to do in the United States and it’s 17 times more difficult to do it in Europe,” he said. “In the meantime, the market will seesaw back and forth.”

In the U.S., better-than-expected corporate earnings and a report showing that manufacturing in the Philadelphia area unexpectedly expanded also helped lift stocks.

Earnings Season

Profit for S&P 500 companies will climb 17 percent in the third quarter and rise 18 percent to a record $99.27 for all of 2011, according to analyst estimates compiled by Bloomberg yesterday. About three quarters of the S&P 500 companies that reported results since Oct. 11 beat analysts’ estimates.

“Our forecast is that we avoid an economic recession,” Stephen Wood, who helps oversee about $163 billion as the New York-based chief market strategist for Russell Investments, said in a telephone interview. “The earnings season looks to be a strong one. As the exogenous risks, including Europe, begin to abate, the market is going to discriminate between stronger earnings and better-run companies.”

The KBW Bank Index of 24 stocks rose 1.9 percent, after falling as much as 1.3 percent. JPMorgan Chase & Co. added 2.7 percent to $33.13. Citigroup Inc. gained 2.4 percent to $30.08.

Fifth Third climbed 9.1 percent, the most in the S&P 500, to $11.63. Quarterly net income at Ohio’s biggest lender more than doubled and the profitability of loans improved. KeyCorp, Ohio’s second-biggest bank, added 6.9 percent to $6.81, after profit beat estimates as bad loans declined.

Philip Morris Jumps

Philip Morris jumped 3.3 percent to $68.19. Chief Executive Officer Louis Camilleri raised prices in Japan, Australia and Indonesia, where demand pushed total shipments higher by 4.4 percent. Excluding excise taxes, total sales at Philip Morris, which generates all of its revenue outside the U.S., advanced 26 percent to $8.36 billion.

EBay Inc. lost 3.1 percent to $32.15. The company is spending to roll out new platforms and products and integrating acquisitions made in the past year to increase the use of its services across the Web, moves that may weigh on earnings in coming quarters.

Dell Inc. sank 5.4 percent to $15.05 amid concerns raised by one of its suppliers, Western Digital Corp., that the worst flooding in Thailand in five decades may hamper production for months. Dell, based in Round Rock, Texas, is one of Western Digital’s biggest customers, according to supply-chain data compiled by Bloomberg.

Momentum and Breadth

Investors should start buying stocks because indicators of momentum and breadth suggest the S&P 500’s rally from an October low will last, said Tom McClellan, editor of the McClellan Market Report.

The benchmark for U.S. equities formed an outside day reversal on Oct. 18, when its intraday high and low exceeded those of the previous day. That pattern, along with charts including the McClellan advance-decline summation index, showed the rally that lifted the S&P 500 as much as 15 percent from its 2011 intraday low will extend until February, McClellan said in a telephone interview yesterday.

“The way that the market had an outside day reversal showing strength was very impressive,” said McClellan, who started publishing the newsletter in 1995 with his father Sherman, creator of the McClellan Oscillator. “You can get into a condition where there is just so much money trying to charge through the door to get into the market that you don’t ever get a pullback you’d like to get, to get on board. And I saw a lot of signs that we’re in that condition.”

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