U.S. Stocks Erase Loss Amid Optimism Over Europe Efforts
U.S. stocks erased early losses amid optimism that European leaders will do more to halt contagion from the region’s debt crisis, helping the market reverse a plunge triggered by growing concern Greece will leave the euro.
Bank of America Corp. (BAC), Alcoa Inc. (AA) and FedEx Corp. (FDX) advanced at least 1.4 percent to pace gains among the biggest companies. Facebook Inc. (FB) increased 3.2 percent after losing 19 percent in the previous two days. Dell Inc. tumbled 17 percent, the most since 2000, amid a disappointing revenue forecast. Hewlett-Packard (HPQ) Co. rallied 10 percent at 5:02 p.m. New York time after reporting quarterly results and saying it will cut 27,000 jobs.
The S&P 500 rose 0.2 percent to 1,318.86 at 4 p.m. New York time, reversing a decline of as much as 1.5 percent. Earlier today, it approached the average price from the last 200 days of about 1,280. The Dow Jones Industrial Average decreased 6.66 points, or 0.1 percent, to 12,496.15, trimming this year’s gain to 2.3 percent. About 7.6 billion shares changed hands on U.S. exchanges today, or 12 percent above the three-month average.
“Huge turnaround,” said Tim Ghriskey, who oversees about $2 billion as chief investment officer of Solaris Group in Bedford Hills, New York. “There’s speculation that European leaders will take action to stabilize the situation with Greece. In addition, there’s a lot of cash on the sidelines looking to get into the equity market. Certainly, the decline we’ve had recently might provide an opportunity.”
Equities fell earlier, joining a global slump, as European leaders meet to discuss the region’s crisis. The prospect of Greece leaving the shared currency weighed on the market as parties opposed to bailout terms won most of the votes in May 6 elections.
Concern about Europe’s crisis erased about $4 trillion from global equity values this month as Brazil and Russia entered into bear markets. The S&P 500 has fallen 5.7 percent in May as financial and commodity shares tumbled at least 7.8 percent.
“European concerns are fueling global deleveraging that is particularly severe for sectors vulnerable to economic slowdowns and financial dislocations,” said Mohamed El-Erian, the chief executive officer of Pacific Investment Management Co., the largest manager of bond funds. “To contain the likely economic and financial disruptions, a ‘Grexit’ would need to be part of a broader effort to strengthen the euro zone’s underpinnings.”
Companies that are most-tied to economic growth rallied after posting the biggest losses in the S&P 500 earlier today. The Dow Jones Transportation Average, a proxy for the economy, gained 1.2 percent. Bank of America added 2.7 percent, the most in the Dow, to $7.17. Alcoa, the largest U.S. aluminum producer, advanced 1.4 percent to $8.61. FedEx, the operator of the world’s biggest cargo airline, climbed 2.2 percent to $88.74.
Facebook added 3.2 percent to $32. It fell below its $38 IPO price on May 21 on concern its initial public offering was priced too high. The offering valued Facebook at 107 times trailing 12-month earnings, more than every S&P 500 member except Amazon.com Inc. and Equity Residential.
The cost to short sell Facebook is at the most-expensive level in a 10-point scale developed by Data Explorers Ltd., which said bets against the social-media company amount to 4.3 percent of shares sold in the company’s initial public offering.
A measure of homebuilders in S&P indexes gained 2.2 percent. Demand for new U.S. homes rose more than forecast in April, indicating residential real estate may contribute to economic growth for the first time in seven years.
Expedia Inc. (EXPE) advanced 6.8 percent to $45.61, a record. Piper Jaffray Cos. said ComScore Inc. data suggest a “strong acceleration” in Europe for online-travel companies and raised its share-price estimate by 20 percent.
Car companies had the biggest gain in the S&P 500 among 24 industries, adding 1.4 percent. Ford Motor Co. (F) jumped 2.2 percent to $10.41. The automaker was raised to investment grade by Moody’s Investors Service yesterday, enabling Executive Chairman Bill Ford, great-grandson of the founder, to reclaim the blue oval logo he put up as collateral for a loan.
Dell tumbled 17 percent, the biggest decline in the S&P 500, to $12.49. The forecast, paired with a first-quarter sales and earnings miss, pointed to problems endemic to Dell, Steve Felice, Dell’s president, said in a conference call. The sales team focused on individual products instead of packages of hardware and software, he said.
Rival Hewlett-Packard rallied 10 percent to $23.27 after the close of regular trading. The world’s largest PC maker will eliminate the jobs by October 2014 through firings and early retirement offers, for an annual savings of as much as $3.5 billion. The company also forecast fiscal third-quarter profit that missed analysts’ estimates on slumping demand for printers, data-center equipment and services.
Earlier losses drove the S&P 500 near its 200-day moving average. A drop below that level is seen by some technical analysts as a harbinger of further losses and could take the S&P 500 to 1,205, according to Ryan Detrick at Schaeffer’s Investment Research.
“If we continue to get negative news out of Europe, there would be a decent probability of that happening,” said Detrick, senior technical strategist at Schaeffer’s in Cincinnati. “We need some type of major positive catalysts to get us moving higher. Right now, we just don’t have one.”
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