Dow Rallies to Highest Level Since 2007 on Manufacturing

Traders work on the floor of the New York Stock Exchange on April 30, 2012. Photographer: Michael Nagle/Bloomberg
Traders work on the floor of the New York Stock Exchange on April 30, 2012. Photographer: Michael Nagle/Bloomberg

U.S. stocks advanced, sending the Dow Jones Industrial Average to the highest level since December 2007, after a better-than-estimated manufacturing report bolstered investors’ optimism in the world’s largest economy.

JPMorgan Chase & Co., Intel Corp. and Alcoa Inc. climbed at least 1.8 percent to pace rallies among the biggest companies. The Dow Jones Transportation Average, a proxy for economic growth, increased 1.1 percent. Sears Holdings Corp. soared 15 percent as it forecast a profit after selling some stores in the U.S. and Canada. Stocks pared gains after Apple Inc., the world’s most valuable company, reversed an earlier advance.

The Standard & Poor’s 500 Index advanced 0.6 percent to 1,405.82 at 4 p.m. New York time, the highest level since April 3. The Dow increased 65.69 points, or 0.5 percent, to 13,279.32. The Russell 2000 Index of small companies retreated 0.1 percent to 815.89. About 6.7 billion shares changed hands on U.S. exchanges today, or almost in line with the three-month average.

“The economy is starting to get on its own two feet,” said Wayne Lin, a money manager at Baltimore-based Legg Mason Inc. His firm oversees $643.3 billion. “Manufacturing is forward-looking. It leads what the actual economic activity tends to end up being. It tells us that firms are being a bit less conservative. Confidence is starting to reemerge.”

Stocks rose as manufacturing unexpectedly expanded in April at the fastest pace in 10 months. The report added to optimism after data showed growth in Chinese manufacturing. Investors also watched corporate earnings as 74 percent of S&P 500 companies that reported results since April 10 have beaten projections, according to data compiled by Bloomberg.

Good Value

Today’s gain extended this year’s advance in the S&P 500 to 12 percent. The index still trades at 14.3 times reported earnings, below the average since 1954 of 16.4. Former Federal Reserve Chairman Alan Greenspan said U.S. stocks offer good value and are likely to rise as earnings increase over time.

“Stocks are very cheap,” Greenspan, who served as Fed chairman from August 1987 to January 2006, said today at the Bloomberg Washington Summit hosted by Bloomberg Link. “There is no place for earnings to grow except into stock prices.”

Better-than-estimated earnings and economic data show the Fed doesn’t need to add monetary stimulus at this time, according to Kevin Rendino, a money manager at New York-based BlackRock Inc. The benchmark gauge has more than doubled since reaching a 12-year low on March 2009 amid government stimulus.

“We don’t need QE3 right now,” said Rendino, referring to a so-called third round of quantitative easing, or asset purchases to stimulate the economy. His firm oversees $3.68 trillion as the world’s largest asset manager. “We need to have an economy that can stand on its own.”

Harbinger of Gains

Equities rebounded after the S&P 500 halted a four-month gain in April. Yet a rally of more than 10 percent in the first four months of the year has been a harbinger of gains in May, said Bespoke Investment Group. In the 19 times since 1927 that the S&P 500 has had such a start to the year, it has followed with an average gain of 2.2 percent in May, Bespoke data show.

The Morgan Stanley Cyclical Index of companies most tied to the economy rose 1.6 percent. JPMorgan jumped 1.9 percent to $43.79. Intel, the largest chipmaker, climbed 2 percent to $28.95. Alcoa, the biggest U.S. aluminum producer, increased 2.5 percent to $9.97.

Sears Holdings soared 15 percent, the most in the S&P 500, to $62.05. The retailer said first-quarter profit excluding some items was as much as $195 million after selling stores in the U.S. and Canada, compared with a loss a year earlier. It plans to spin off its Hometown and Outlet stores in the third quarter, possibly giving Chairman Edward Lampert an opportunity to hold a larger stake in the new publicly traded company.

Beating Estimates

Archer Daniels Midland Co. rallied 7.1 percent to $33.02. The largest grain processor topped analysts’ profit estimates for the first time in four quarters after international grain sales and oilseed processing in North America improved.

A measure of energy shares had the biggest advance among 10 industries in the S&P 500 today, rising 1.4 percent, as 39 of its 44 stocks gained.

Chesapeake Energy Corp. jumped 6.3 percent to $19.60. The company will name an independent chairman to replace Aubrey McClendon and halt an incentive program that allowed the chief executive officer to amass personal stakes in thousands of company-operated wells.

Anadarko Petroleum Corp. added 2.5 percent to $75.06. The second-largest U.S. independent oil and natural-gas producer by market value said first-quarter profit rose on higher crude prices and a $1.8 billion gain from an Algerian tax settlement.

Bottom Signs

Solar stocks rallied after Citigroup Inc. raised its recommendation on the industry, citing “signs of a near-term bottom.” SunPower Corp. surged 7.8 percent to $6.05. Trina Solar Ltd. increased 3 percent to $7.48.

The S&P 500 pared an advance of more than 1.2 percent after Apple fell 0.3 percent to $582.13, capping its fourth straight loss. The shares jumped 2.2 percent earlier today.

Avon Products Inc. slumped 8 percent, the biggest loss in the S&P 500, to $19.87. The door-to-door cosmetics seller that’s the target of a $10 billion takeover bid from Coty Inc. reported first-quarter profit that trailed estimates, hurt by higher labor and materials costs.

Emerson Electric Co. dropped 6.4 percent to $49.18. The maker of industrial equipment reported second-quarter revenue and profit that missed estimates.

Herbalife Ltd. tumbled 20 percent, the most since 2009, to $56.30. The maker of nutritional supplements and weight-management products slumped as hedge-fund manager David Einhorn asked executives why it has stopped providing information tracking certain groups of its distributors in its filings.

Trend Charts

Stock market trend charts and investor sentiment are signaling the S&P 500 may surpass its 2012 high before the rally gives way to a 10 percent decline, according to UBS AG.

The benchmark gauge for U.S. equities is likely to exceed this year’s peak of 1,419.04 and climb to 1,460, after it held last month above its March 6 low, said Michael Riesner and Marc Mueller, Zurich-based analysts with UBS. The S&P 500 halted a five-day slump on April 10 at 1,358.59. Two weeks later, it rebounded from another drop at 1,358.79.

The level of 1,358 “represents a new pivotal support for the SPX,” the analysts wrote in a note yesterday, referring to the S&P 500’s ticker. “As long as the market trades above this level, the U.S. market remains bullish biased,” they said.

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