U.S. stocks rose, following the best weekly rally since 2009, as optimism that Europe will tame its debt crisis helped the market weather a late-day selloff on reports that euro-area nations' credit outlooks may be cut.
All 10 groups in the Standard & Poor’s 500 Index gained, with a gauge of financial shares adding 2.1 percent. JPMorgan Chase & Co. and Bank of America Corp. advanced at least 2.6 percent. MetLife Inc., the largest U.S. life insurer, increased 3.7 percent after saying earnings will probably rise in 2012. Gannett Co., the owner of newspapers including USA Today, surged 10 percent as Lazard Capital Markets raised its recommendation.
The S&P 500 rose 1 percent to 1,257.08 at 4 p.m. New York time, extending last week’s 7.4 percent rally. The benchmark measure briefly traded above its average price of the past 200 days of about 1,265 today. The Dow Jones Industrial Average climbed 78.41 points, or 0.7 percent, to 12,097.83.
“There’s great potential reward, but great risk,” James Paulsen, who helps oversee about $333 billion as chief investment strategist at Minneapolis-based Wells Capital Management, said in a telephone interview. “If you take Europe out of the picture, valuations could jump dramatically. If there’s disappointment, we can have a sizable decline.”
Italian borrowing costs dropped as Prime Minister Mario Monti offered parliament a 30 billion-euro ($40 billion) package of austerity and growth measures. German Chancellor Angela Merkel and French President Nicolas Sarkozy pushed for a rewrite of the EU’s governing rules to tighten economic cooperation. Merkel and Sarkozy presented a common platform for a Dec. 8-9 summit of EU leaders in Brussels.
Stocks pared gains in the afternoon as two officials familiar with the S&P decision said the agency may downgrade euro nations. After the market closed, S&P announced that it put 15 euro nations on review for possible downgrade. Germany, France, Netherlands, Austria, Finland and Luxembourg, the euro area’s six AAA rated countries, are among the nations being placed on “creditwatch negative,” pending the result of the EU summit, S&P said.
“This is a period where rating agencies have to be more cautious,” Eric Teal, chief investment officer at First Citizens Bancshares Inc., which manages $4 billion in Raleigh, North Carolina, said in a telephone interview. “It’s conceivable that there will be more downgrades. There’s some optimism building there that if Europe has a bold enough plan, they could put some of the problems behind. We’re still skeptical because of the many structural problems.”
Stocks rose even as a report showed that service industries in the U.S. expanded in November at the slowest pace since January 2010 as employment cooled.
Gauges of financial, technology and energy companies in the S&P 500 rose at least 1.1 percent. The Morgan Stanley Cyclical Index of companies most-dependent on economic growth gained 1.6 percent. The Dow Jones Transportation Average added 1.5 percent.
The KBW Bank Index rallied 2.7 percent as 23 of its 24 stocks gained. JPMorgan increased 3.7 percent, the most in the Dow, to $33.51. Bank of America added 2.7 percent to $5.79. Citigroup Inc. jumped 5.9 percent to $29.83.
MetLife climbed 3.7 percent to $32.92. Next year’s operating profit, which excludes some investment results, will be $4.80 to $5.20 a share, the New York-based company said today in a statement. That compares with the average $5.08 estimate of 20 analysts surveyed by Bloomberg.
Gannett surged 10 percent, the biggest gain since September 2009, to $13.13. The company was raised to “buy” from “neutral” at Lazard Capital Markets, which cited increased chances for a dividend boost.
Tenet Healthcare Corp. soared 12 percent to $4.70, pacing gains in hospital operators. A program to pre-approve Medicare hospital payments for pacemakers and joint replacements is limited to Florida, a U.S. doctor’s group said. Hospital and medical device stocks tumbled on Dec. 2 after a report said Medicare, the U.S. health plan for the elderly and disabled, won’t pay for a range of heart and orthopedic procedures in 11 states until contractors confirm the care was appropriate.
SuccessFactors Inc. surged 51 percent to $39.75. SAP AG, the largest maker of business-management software, agreed to buy the company for $3.4 billion in cash to keep pace with rival Oracle Corp. in the cloud-computing market.
The S&P 500 will climb to 1,360 next year as corporate profits increase and European and U.S. officials make policy changes, Gina Martin Adams of Wells Fargo & Co. said.
That forecast would represent a 9.3 percent gain from its close on Dec. 2 of 1,244.28. The level is about 13 times a blend of estimated 2012 and 2013 earnings, Adams, a strategist at the bank, said in a note dated today.
Adams predicts Europe’s debt crisis will push leaders in the region to offer a “credible” asset purchase program next year, while global economic growth concerns will spur the U.S. Federal Reserve to embark on a third round of quantitative easing within the next 12 months. Her 2012 price forecast for the benchmark equity index is in line with the 1,359 average of nine strategists surveyed by Bloomberg.
“Stocks will start the year troubled by ongoing sovereign debt struggles in Europe,” New York-based Adams wrote in the report. “European and U.S. policy makers will likely have to create just the right mix of ingredients to fill the punchbowl to the satisfaction of investors.”