U.S. Stocks Rebound on Earnings as Dell Agrees to Buyout
U.S. stocks advanced, rebounding from the biggest loss of the year for benchmark indexes, as earnings topped forecasts and Dell Inc. agreed to be taken private in the largest leveraged buyout since the financial crisis.
All 10 groups in the Standard & Poor’s 500 Index climbed at least 0.1 percent. Dell added 1.1 percent after Chief Executive Officer Michael Dell and Silver Lake Management LLC agreed to buy the personal-computer maker. Computer Sciences Corp. jumped 9.2 percent after raising its earnings forecast for 2013. McGraw-Hill Cos. plunged the most in the benchmark index after the company and its S&P unit were sued by the U.S. over mortgage-bond ratings.
The S&P 500 rose 1 percent to 1,511.29 at 4 p.m. in New York. The index sank 1.2 percent yesterday amid concern that the European debt crisis may intensify. The Dow Jones Industrial Average added 99.22 points, or 0.7 percent, to 13,979.30 today. More than 6.7 billion shares traded hands on U.S. exchanges today, or 8.3 percent above the three-month average.
“There’s an underlying tidal wave,” Rob Morgan, who oversees $1 billion as chief investment strategist at McLean, Virginia-based Fulcrum Securities LLC, said by telephone. “When you do get a pullback, that’s an excellent time to put some money to work in the stock market,” he said. “If insiders are buying their stock, that’s a positive sign. Here’s the ultimate insider of Dell, basically buying a controlling stake.”
The S&P 500 has rallied 6 percent in 2013 as U.S. lawmakers reached a budget compromise and companies reported better-than-estimated earnings. The gauge is 3.4 percent below the record 1,565.15 it reached in October 2007. The Dow is 1.3 percent from its all-time high.
The benchmark gauge tumbled the most since Nov. 14 yesterday as Spanish Premier Mariano Rajoy faced opposition calls to resign and Deutsche Bank AG said this year’s rally in Italian and Spanish bonds may falter.
About 74 percent of the 291 companies from the gauge that have released results so far in the reporting season have exceeded profit projections, and 66 percent have beaten sales estimates, according to data compiled by Bloomberg. Walt Disney Co. and Expedia Inc. are among 27 companies in the S&P 500 that reported today.
The Institute for Supply Management’s index of U.S. non-manufacturing businesses, which covers about 90 percent of the economy, fell to 55.2 in January from the prior month’s 55.7, the Tempe, Arizona-based group said today. The median forecast of 76 economists surveyed by Bloomberg projected 55. Readings above 50 signal expansion.
“It’s as if the water’s fine, so come on in,” Rex Macey, who oversees $20 billion as chief investment officer at Wilmington Trust Advisors in Atlanta, said by telephone. “We’re getting into a ‘buy on dips’ mentality as people try to increase their positioning.” He said on Dell, “These are indications that there’s long-term confidence in the economy and the markets.”
Consumer, financial, health-care and technology companies rose the most out of 10 S&P 500 groups, rallying at least 1 percent. Twenty-eight out of 30 stocks in the Dow increased. The KBW Bank Index of 24 U.S.-listed lenders added 1.6 percent to 54.90, a two-year high. Bank of America Corp. jumped 3.5 percent to $11.88. JPMorgan Chase & Co. gained 2.3 percent to $48.79. Apple Inc. rallied 3.5 percent to $457.84 and Hewlett-Packard Co. surged 2.7 percent to $16.61.
Dell added 15 cents to $13.42. The world’s third-biggest maker of personal computers agreed to be purchased for $13.65 a share in a deal valued at $24.4 billion. That’s 25 percent more than the closing price of $10.88 on Jan. 11, the last trading day before Bloomberg News reported the discussions. Michael Dell is taking back majority control of the company he started almost three decades ago.
Computer Sciences gained the most in the S&P 500, adding $3.84 to $45.75. The technology contractor for governments and companies forecast earnings from continuing operations this year will be as much as $2.70 a share after previously projecting no more than $2.50.
Archer-Daniels-Midland Co. advanced 3.3 percent to $29.38. The world’s largest corn processor reported earnings excluding inventory gains and other items exceeded analysts’ estimates by 2 cents a share, as its U.S. soybean-crushing operations ran at record capacity. Sales were $24.9 billion, exceeding the $22.7 billion average projection.
Estee Lauder Cos. jumped 6 percent to $64.71. The maker of Mac cosmetics and Clinique skin care lifted its profit forecast for the year to as much as $2.59 a share. The New York-based company previously estimated earnings would be no more than $2.56.
Zynga Inc. jumped 7 percent to $2.74. Bank of America raised its rating on the biggest maker of social games to buy from underperform.
BlackBerry surged 6.9 percent to $16.02. Thorsten Heins, chief executive officer of the company formerly known as Research In Motion Ltd., said early sales of the Z10 smartphone are “encouraging” and that users are switching from other platforms. The Z10 smartphone has attracted record orders at Canadian wireless carrier BCE Inc. and analysts say sales are off to a strong start in the U.K.
McGraw-Hill plunged 11 percent to $44.92, adding to a 14 percent drop yesterday when the company said it expected the lawsuit. The U.S. is seeking as much as $5 billion in penalties from McGraw-Hill and S&P as punishment for inflated credit ratings that Attorney General Eric Holder said were central to the worst financial crisis since the Great Depression.
“Claims that we deliberately kept ratings high when we knew they should be lower are simply not true,” said Catherine Mathis, a company spokeswoman, in an e-mailed statement.
Moody’s Corp., owner of the second-largest ratings provider, dropped 8.8 percent for the second-biggest decline in the S&P 500 to $45.09. The shares lost 11 percent yesterday.
Yum! Brands Inc. slid 2.9 percent to $62.08. The owner of the KFC and Pizza Hut dining chains said profit will be less than it previously expected as a probe into its chicken suppliers hurt sales in China. Earnings excluding certain items will drop this year, compared with a previous estimate for growth of 10 percent, the company said late yesterday in a statement.
Diamond Offshore Drilling Inc., the largest offshore rig contractor in the U.S., fell 3.8 percent to $73.58, after forecasting more downtime for its vessels in 2013 than analysts expected.
U.S. stocks will extend gains from a five-year high as corporate earnings increase and central banks maintain policies to stimulate economic growth, said Robert Doll, Nuveen Asset Management LLC’s chief equity strategist.
Interest rates near zero will lead investors to keep adding to equity funds, said Doll, who works at the Chicago-based firm that oversees $117 billion. He said he’s bullish on shares from the U.S. and emerging markets and concerned about European and Japanese equities.
“The fundamentals, meaning corporate earnings, macroeconomics, delay of problems in Washington, zero-percent return on cash, and monetary accommodation virtually everywhere in the world,” Doll said in a television interview on “Bloomberg Surveillance” with Tom Keene. “They’re the ingredients to me for stocks to go higher.”
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