U.S. Stocks Rise as Retailer Rally Offsets Debt-Ceiling

U.S. stocks advanced, rebounding from earlier losses in the Standard & Poor’s 500 Index, as a rally in retail and transportation companies overshadowed concern about discussions on raising the debt ceiling.

Consumer discretionary companies led the gains in the S&P 500 as data showed retail sales rose more than forecast in December. Dell Inc. rallied 7.2 percent, following yesterday’s 13 percent surge, as the computer maker is said to be in buyout talks. Apple Inc. and Hewlett-Packard Co. dropped at least 2.4 percent to pace losses in technology shares. Facebook Inc. retreated 2.7 percent after the company introduced a tool for searching information posted to its social network.

The S&P 500 rose 0.1 percent to 1,472.34 at 4 p.m. New York time, after falling as much as 0.5 percent earlier. The Dow Jones Industrial Average added 27.57 points, or 0.2 percent, to 13,534.89. The Dow Jones Transportation Average gained 0.7 percent to a record 5,639.64. About 5.8 billion shares changed hands on U.S. exchanges, or 5.7 percent below the three-month average, according to data compiled by Bloomberg.

“The retail data is good news for economic expansion,” said Peter Jankovskis, who helps oversee $3 billion of assets as co-chief investment officer at Lisle, Illinois-based Oakbrook Investments LLC. He spoke in a telephone interview. “It’s encouraging. We have the earnings season going on, people are on wait-and-see mode. In addition, there’s a lot of rhetoric on the debt-ceiling front. Though it’s probably a bit early to start getting concerned about that.”

Economic Data

Retail sales rose more than forecast in December to end 2012 on a positive note, indicating Americans may be able to rise above Washington’s budget rancor to keep contributing to economic growth. Manufacturing in the New York region contracted in January for the sixth straight month as the industry continued to face the effects of fiscal uncertainty in the U.S. and lackluster demand overseas.

With as little as a month until the U.S. runs out of money to pay its bills, President Barack Obama warned Republicans in Congress not to use the need for a debt-limit increase to force through new spending cuts. Obama insisted yesterday he won’t negotiate on raising the debt ceiling because the U.S. has no choice other than to pay for spending it has authorized. Many Republicans in Congress say a boost in borrowing authority must be linked to spending cuts.

The Treasury Department has been using emergency measures since the end of December to prevent a breach of the $16.4 trillion debt limit. In a letter yesterday to House Speaker John Boehner, Treasury Secretary Timothy Geithner said the department expects to exhaust those measures “between mid-February and early March.”

‘Formal Review’

Since 1960, Congress has raised or revised the limit 79 times, including 49 times under Republican presidents, according to the Treasury Department. A failure of U.S. lawmakers to raise the nation’s debt ceiling would prompt a “formal review” of its credit rating, Fitch Ratings said in a press release today.

“The debt-ceiling concern means more uncertainty in play,” Tom Wirth, who helps manage $1.6 billion as senior investment officer for Chemung Canal Trust Co., in Elmira, New York, said in a phone interview. “Obama can’t say he won’t negotiate because he has no choice. He’s not Congress. It’s not good for the economy to have a government shutdown. It just feels like August 2011. The Congress is going to take us to the brink once again.”

Investors also watched earnings reports. Almost 80 percent of the 30 S&P 500 companies which reported quarterly results beat analysts forecasts. Fourth-quarter profits at S&P 500 companies grew 2.5 percent, according to analysts’ estimates compiled by Bloomberg. That would be the second-slowest quarterly growth since 2009, the data show.

Transportation Shares

Today’s rally in the Dow Jones Transportation Average extended this year’s advance to 6.3 percent, compared with a 3.2 percent gain in the S&P 500. The index rose 5.7 percent last year, underperforming the S&P 500.

“The transportation sector lagged the general market last year,” Richard Weiss, who oversees $16 billion as a senior portfolio manager at American Century Investments in Mountain View, California, said in a phone interview. “It’s catching up in 2013 pretty significantly. We’re relatively optimistic on the consumer and the economy. I don’t think that anybody is arguing at this point that the consumer and the housing sector are on the mend. That’s a major driver to the U.S. and the global economy.”

Retailers had the second-best performance among 24 industries in the S&P 500. Limited Brands Inc. rose 2 percent to $46.43, Abercrombie & Fitch Co. added 2.8 percent to $50.20, and J.C. Penney Co. climbed 3.4 percent to $18.71.

Dell Rallies

Dell rallied 7.2 percent to $13.17. The third-largest personal-computer maker is discussing a leveraged buyout with private-equity firms TPG Capital and Silver Lake, a person with knowledge of the matter said yesterday. Its stock has lost 43 percent in the past five years, compared with a 3.8 percent gain by the S&P 500.

Express Inc. rallied 24 percent, the most since its initial public offering in May 2010, to $17.40. The retail apparel chain raised its outlook for the fourth quarter and full year 2012.

Three out of 10 groups in the S&P 500 retreated as phone and technology shares had the biggest losses. Apple, the world’s most valuable company lost 3.2 percent to $485.92. HP dropped 2.5 percent to $16.53. The Chicago Board Options Exchange Volatility Index, which measures the cost of using options as insurance against declines in the S&P 500, rose 0.2 percent to 13.55. The gauge ended last week at the lowest level since 2007.

Graph Search

Facebook fell 2.7 percent to $30.10. The Graph Search, which lets users seek people, photos and places, doesn’t look for Web-based content, Facebook Chief Executive Officer Mark Zuckerberg said at the company’s Menlo Park, California, headquarters. While Zuckerberg said the new feature could be a “business” in the future, he didn’t outline how it will make money soon.

Zuckerberg is adding services to step up revenue growth and shake off the concerns that the company doesn’t know how to make money from its user base. While Facebook has rebounded from a record intraday low of $17.55 on Sept. 4, the company is still in the early stages of generating revenue from ads placed on mobile devices.

Lululemon Athletica Inc. slid 3.9 percent to $69.47 after the Canadian yoga-wear retailer forecast fourth-quarter sales that trailed analysts’ estimates.

U.S. companies from Intel Corp. to General Electric Co. are caught in an earnings slump that shows few signs of improving until midyear as a weak global economy and gridlock in Congress weigh on profits.

Earnings Drop

Intel, the world’s largest semiconductor maker, is poised to report its biggest quarterly earnings drop in 3 1/2 years this week, based on analysts’ estimates compiled by Bloomberg. GE, the maker of jet engines and electrical generation equipment, may post its slowest profit growth in three quarters.

The results would contribute to a predicted 2.5 percent increase in fourth-quarter earnings for the S&P 500, the second-worst showing since 2009. Without a bump from financial companies that have cut jobs, the gain would be lower at 0.4 percent. A pickup may start in the second quarter, when analysts foresee earnings rising 8.2 percent from improving employment and housing and more clarity on government spending.

“Many companies slowed down their capital spending until they saw what was going to happen with the fiscal cliff,” said Stanley Nabi, who helps manage more than $11 billion as vice chairman of Silvercrest Asset Management Group in New York. “As employment increases, more people are earning income and spending. This supports the economy. We’ll have higher profits because we’re going to have higher revenue.”

Before it's here, it's on the Bloomberg Terminal.