U.S. Stocks Rally on Manufacturing, Prospects for Irish Bailout
U.S. stocks rallied, sending major equity benchmarks to their biggest gains in two weeks, as speculation grew that Ireland will accept a bailout to rescue indebted banks and reports on manufacturing and jobless claims bolstered optimism about the economy.
Alcoa Inc. and Halliburton Co. climbed at least 3.4 percent as metals prices jumped and crude oil rebounded from a four-day drop. Caterpillar Inc. advanced 2.4 percent as the world’s largest maker of construction equipment said global retail sales of machines soared 48 percent. General Motors Co. rose 3.6 percent on its return to public trading following a $20 billion initial public offering.
“It seems like everyone wants a rally today,” said Jeffrey Davis, who oversees $5 billion as chief investment officer at Lee Munder Capital Group in Boston. “The U.S. economic numbers have been very supportive. On top of that, we’re pretty satisfied with the way Europe is handling the Irish situation. And obviously GM’s IPO is bringing a positive tone to everybody’s thinking. I’m encouraged.”
The S&P 500 tumbled by the most in almost three months on Nov. 16 amid speculation the debt crisis in Europe is worsening and that China will act to slow its economy. The benchmark gauge has still jumped 17 percent since July 2 as the Federal Reserve increased its program of asset purchases to stimulate growth.
The MSCI World Index had its biggest gain since Nov. 4 today as Irish bonds climbed after central bank Governor Patrick Honohan said he expects Ireland to tap a loan from the European Union and the International Monetary Fund worth “tens of billions” of euros. Irish Finance Minister Brian Lenihan said the government is prepared to ask for a bank rescue package after talks conclude with the EU and IMF, which sent teams to Dublin today.
“Europe is a bit of a sideshow to the U.S.,” said Barry Knapp, chief U.S. equity strategist at Barclays Plc in New York. “It would be a bigger issue if the data over here weakened. That’s not the case.”
U.S. futures extended gains as Labor Department figures showed applications for unemployment insurance payments rose by 2,000 to 439,000 in the week ended Nov. 13. The total number of people collecting unemployment insurance fell to the lowest in two years, while those receiving extended benefits increased.
Stocks added to their advance after manufacturing in the Philadelphia region expanded in November at the fastest pace this year. The Fed Bank of Philadelphia’s general economic index jumped to 22.5, exceeding the most optimistic forecast in a Bloomberg News survey, from a measure of 1 a month earlier. Readings greater than zero signal expansion. Another report showed the index of U.S. leading indicators rose for the fourth time in a row in October.
Shares of economically-sensitive industries, from metals and energy producers to industrial and technology makers, led gains in the S&P 500, rallying at least 1.8 percent.
Commodities and global industrial makers rose as the dollar fell, sending the Thomson Reuters/CRB Index of 19 raw materials up 2.4 percent, its largest increase since Oct. 8.
Alcoa, the largest U.S. aluminum producer, jumped 3.4 percent to $13.38. Halliburton, the world’s second-largest oilfield-services provider, rallied 5.8 percent to $37.56.
Caterpillar added 2.4 percent to $83.11. General Electric Co., the world’s biggest maker of jet engines, turbines for power-plants, medical imaging equipment and locomotives, gained 1.5 percent to $16.04.
GE Capital, a unit of the Fairfield, Connecticut-based conglomerate and one of the biggest lenders to small and midsize U.S. companies this year, said a survey of chief financial officers showed that most are experiencing improved capital access, low to moderate economic growth and “healthy” hiring.
“None of the CFOs expect a double dip, and 84 percent see stable-to-improving” economic conditions, said Dan Henson, who oversees GE Capital in the Americas. “The picture has improved. You’ve got some moderate to decent growth.”
GM, which went bankrupt last year after almost a century on the New York Stock Exchange, advanced 3.6 percent to $34.19 after climbing as high as $35.99. The automaker’s owners, including the U.S. Treasury, sold $15.8 billion of common shares at $33 each yesterday in the second-largest U.S. IPO on record.
The offering of $4.35 billion of preferred shares and an overallotment option may boost the total to $23.1 billion, more than the $22.1 billion raised by Beijing-based Agricultural Bank of China Ltd. in the biggest IPO of common stock in history.
Applied Materials Inc. added 2.2 percent to $12.65. The largest producer of chip-making equipment said profit more than tripled as semiconductor manufacturers ordered more machinery. Fourth-quarter net income increased to $468 million, or 35 cents a share, from $137.9 million, or 10 cents, a year earlier. Analysts on average projected profit of 31 cents and sales of $2.6 billion, according to estimates compiled by Bloomberg.
NetApp Inc. rose the most in the S&P 500, gaining 7.9 percent to $53.12. The third-biggest seller of external computer-storage systems said on a conference call yesterday it expects to win market share and is considering share buybacks. The company was also raised to a “buy” from a “hold” at Canaccord Genuity Corp.
The S&P 500, which has lost 3.9 percent from a two-year high on Nov. 5 through yesterday, is unlikely to fall more than 8 percent from its 2010 high, said Jeffrey deGraaf of ISI Group Inc. He said the stock market’s trend turned positive last month as gauges of momentum on Sept. 3 registered the best readings since March 2009. The historical tendency of stocks to rise between now and the end of January, and leadership from commodity, consumer and industrial companies during the retreat, support a bullish outlook, he said.
“You want those to be the leadership groups to be bullish on stocks,” the head of technical analysis at ISI said. “It’s a very dangerous time to be fighting a strong tape seasonally. So we’ll get a consolidation -- I don’t think it’s anything worse than 1,130 -- and then take another run at a new high.”
The benchmark index for U.S. stock options fell the most since June 2. The VIX, as the Chicago Board Options Exchange Volatility Index is known, tumbled 14 percent to 18.75. The index, which measures the cost of using options to protect against S&P 500 declines, has fallen by more than half from this year’s peak of 45.79 in May.
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