U.S. Stocks Gain After Wells Fargo Beats Estimates, Oil Drops

By Lynn Thomasson

July 16 (Bloomberg) -- U.S. stocks rose, helping the Standard & Poor's 500 Index rebound from the lowest level since 2005, after profit at Wells Fargo & Co. topped analysts' estimates and a drop in oil eased concern about faster inflation.

Wells Fargo, the U.S. West Coast bank that lost almost a third of its value this year, rallied the most since at least 1980 after also boosting its dividend 10 percent. United Parcel Service Inc. and Target Corp. climbed as a two-day retreat in crude prices overshadowed a government report showing the biggest gain in consumer prices since 2005.

The S&P 500 added 7.98, or 0.7 percent, to 1,222.89 at 10:02 a.m. in New York. The Dow Jones Industrial Average climbed 70.42, or 0.6 percent, to 11,032.96, while the Nasdaq Composite Index rose 16.47, or 0.7 percent, to 2,232.18. Almost two stocks rose for each that fell on the New York Stock Exchange.

``This quarter was fairly good'' for earnings, said Eric Green, Cherry Hill, New Jersey-based director of research and senior money manager at Penn Capital Management, which oversees about $4.5 billion. ``This is a buying opportunity if you have a 12-month time horizon.''

Profits have slipped only 0.8 percent on average for the 26 companies in the S&P 500 that have reported second-quarter results so far, according to data compiled by Bloomberg. Earnings for all companies in the index are forecast to drop 14 percent on average, according to an analyst survey published July 11. The quarter is expected to cap a full year of declining earnings, the longest profit slump in six years.

Almost $14 Trillion Lost

About $14 trillion has been wiped off the value of global equities since October, with the S&P 500 falling into a bear market last week, as $417 billion in credit-related losses prolong the global economy's slump and rising commodity prices stoke inflation.

Among the 23 industrialized nations in the MSCI World Index, only Canada averted a bear-market decline of 20 percent. Financial institutions and consumer companies dependent on discretionary spending led the world's retreat in 2008, losing 31 percent and 22 percent.

Wells Fargo rallied $3.32, or 16 percent, to $23.83 for the steepest gain in the S&P 500. Gains in credit card fees and insurance revenue softened the blow from bad home loans. Net income slumped 23 percent to $1.75 billion, or 53 cents a share. That beat the 50-cent average estimate of 21 analysts surveyed by Bloomberg. Revenue rose 16 percent to a record $11.5 billion.

Resilient Sales

Intel rose 10 cents to $20.81. Third-quarter sales will be $10 billion to $10.6 billion, the company said yesterday. That compares with an average prediction of $10 billion in a Bloomberg survey of analysts. Computer-processor sales remain strong worldwide, with no signs of the U.S. economy sapping demand, according to Chief Financial Officer Stacy Smith.

Sears lost 40 cents to $70.05. Coca-Cola retreated 8 cents to $51.71.

The global bear market in equities will deepen from New York to London to Tokyo in the next six months as credit losses prolong the economy's slump and inflation erodes profits, a survey of Bloomberg users showed.

The S&P 500, the U.K.'s FTSE 100 Index, Japan's Nikkei 225 Stock Average, Spain's IBEX 35 Index, the Swiss Market Index, France's CAC 40 Index, Italy's S&P/MIB Index and Germany's DAX Index will decline, according to the Bloomberg Professional Global Confidence Survey of 4,232 users taken July 7 to 11. In Brazil, the only market where investors predict gains, optimism dropped to a five-month low, the survey showed.

Citigroup, Fannie Mae

The S&P 500 has slumped 22 percent since its Oct. 9 record. Financial shares in the measure capped the steepest-ever five-day decline yesterday, with Citigroup Inc., the biggest U.S. bank, plunging to the lowest level since it was created through a merger in October 1998. Fannie Mae tumbled 27 percent yesterday for its steepest slump since at least July 1980 as investors lost confidence in the government's plan to rescue the largest U.S. mortgage-finance company.

The S&P 500 now trades for 20.1 times the reported earnings of companies in the index, while the MSCI World Index, excluding the U.S., is valued at 11.8 times profit. When the gap between their price-to-earnings ratios widened to 9.89 in May, the rest of the world hadn't been that much cheaper than the U.S. since 2002.

To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net.