U.S. Stocks Rise for First Time in Five Weeks on Data, Greece

February 13, 2010

By Nikolaj Gammeltoft

Feb. 13 (Bloomberg) -- U.S. stocks rose for the first time in five weeks after European officials pledged to help Greece close its budget deficit and the U.S. economy gained momentum, overshadowing China’s actions to limit inflation.

The advance was reduced when the Standard & Poor’s 500 Index slipped 0.3 percent and the Dow Jones Industrial Average fell 0.4 percent yesterday. For the week, Caterpillar Inc. rose 8.6 percent and technology shares jumped after Motorola Inc. said it would split into two companies. American International Group Inc., the insurer bailed out by the U.S., increased 20 percent on speculation it may sell a unit to MetLife Inc. Bank of America Corp. lost 3.7 percent after its credit outlook was cut to negative from stable by S&P.

The S&P 500 rose 0.9 percent to 1,075.51, cutting its 2010 retreat to 3.6 percent. The Dow average increased 86.91 points, or 0.9 percent, to 10,099.14. The measures have recouped about half of their declines since Feb. 4 when concern about growing budget gaps in Greece, Portugal and Spain spurred the biggest sell-off since April.

“It is positive that the Europeans are finally putting details behind their monetary union,” said Stephen Wood, who helps manage $176 billion as chief market strategist for Russell Investments. “U.S. equities feel better because they’re a safe haven and because the economic data has a slight upwards bias.”

EU, US

Stocks got a boost when European leaders voiced support for Greece’s efforts to regain control of its finances and the U.S. Labor Department said fewer Americans filed claims for unemployment insurance than economists anticipated.

Indexes of companies in the S&P 500 that sell household products and so-called discretionary consumer goods advanced more than 1.5 percent. Inventories in the U.S. unexpectedly fell in December for the first time in three months as companies couldn’t keep up with increasing demand, according to figures from the Commerce Department in Washington.

Home Depot gained 3.7 percent to $29. The largest U.S. home-improvement retailer was raised to “overweight” from “equal-weight” at Morgan Stanley. Goldman Sachs Group Inc. recommended investors buy bullish Home Depot options before the Atlanta-based company reports fourth-quarter results on Feb. 23.

Earnings Reports

A record nine-quarter earnings slump is projected by analysts to have ended in the fourth quarter with an 80 percent increase in S&P 500 profits. Forty-five companies in the index are scheduled to release results next week, including Hewlett- Packard Co., Kraft Foods Inc. and Wal-Mart Stores Inc.

“Earnings have been great,” said Keith Springer, president of Sacramento, California-based Capital Financial Advisory Services Inc., which manages about $100 million. “Companies reacted quickly to adapt to the slower demand, cutting jobs and costs. They’ve become very efficient.”

More than 350 companies in the S&P 500 have reported fourth-quarter earnings since Jan. 11, and about 76 percent have beaten analysts’ estimates, according to data compiled by Bloomberg.

Harman International Industries Inc. soared 27 percent to $44.20 for the biggest advance in the S&P 500. The maker of audio systems for homes and vehicles reported profit excluding some items of 40 cents a share in its fiscal second quarter, five times higher than the average analyst estimate, according to Bloomberg data.

Bank of America fell 55 cents to $14.45. The Charlotte, North Carolina-based bank and Citigroup Inc. had their credit outlooks cut to negative from stable by S&P, which said the U.S. government may be less likely to repeat a bailout of troubled financial institutions.

China Tightening

China ordered banks to set aside more deposits as reserves for the second time in a month to cool the fastest-growing economy after loan growth accelerated and property prices surged. Chinese policy makers are seeking to avert asset bubbles and restrain inflation, causing investor concern that tighter lending will damp the global economic recovery.

“China is no longer discussing a stimulus exit strategy. They’re executing an exit strategy,” Wood said. “That is going to have a continuing and significant impact on asset prices in the global economy. China is going to be the engine of global recovery, but less so going forward.”

Barton Biggs, who recommended buying U.S. stocks in March when benchmark indexes sank to the lowest levels since the 1990s, said he remains bullish about equity gains and that China’s boosting reserve requirements should limit the rate of expansion in its economy without snuffing out growth.

“The Chinese authorities are doing the right thing in terms of gradually tightening,” Biggs, who runs New York-based hedge fund Traxis Partners LP, said in an interview with Bloomberg Television yesterday.

CEO Confidence

Caterpillar, the world’s largest maker of bulldozers and excavators, jumped $4.45 to $56.20 for the biggest gain in the Dow. James Owens, chief executive officer of Caterpillar and chairman of the Business Council, said he is more optimistic about economic growth in the U.S. than the Washington-based group’s CEO confidence gauge, which climbed to 64.7 this month, the highest level in at least four years.

Motorola Inc. rose 75 cents to $7.15. The company, whose handset business lost more than $3 billion in the past two years, will split in two next year, combining its mobile-phone and set-top box divisions into one publicly traded company and the enterprise mobility and networks units into a second.

AIG, the insurer bailed out by the U.S., jumped $4.41 to $26.82 for the second-biggest gain in the S&P 500 on speculation the company will announce its largest asset sale since being rescued by the U.S. MetLife plans to pay $8 billion in stock and $7 billion in cash for AIG’s American Life Insurance Co.


Keith Springer is President of Capital Financial Advisory Services, a registered investment advisor, providing Wealth Management and Mortgage Consulting Services.  For more information on how to build and maintain a solid retirement plan, please contact Keith Springer at 916-925-8900 or Keith@KeithSpringer.com