U.S. Stocks Rise, Led by Retailers, Airlines; Home Depot Gains

By Elizabeth Stanton

Aug. 8 (Bloomberg) -- U.S. stocks rose, helping the Standard & Poor's 500 Index post the first back-to-back weekly gain since May, as retailers and airlines rallied on speculation lower commodity prices will boost earnings.

Home Depot Inc., Macy's Inc. and Gap Inc. climbed as the dollar's biggest advance against the euro in four years pushed crude oil to a three-month low. General Motors Corp. rallied, while United Airlines parent UAL Corp. jumped almost 10 percent. Fannie Mae dropped after joining Freddie Mac in posting a bigger- than-estimated loss and slashing its dividend.

The S&P 500 added 15.68 points, or 1.2 percent, to 1,281.75 at 10:20 a.m. in New York. The Dow Jones Industrial Average rose 182.06, or 1.6 percent, to 11,613.49. The Nasdaq Composite Index climbed 40.22, or 1.7 percent, to 2,395.95, the highest level in a month. More than three stocks gained for each that fell on the New York Stock Exchange.

``The break in commodity prices has changed consumer and investor sentiment,'' said Eric Green, Cherry Hill, New Jersey- based director of research at Penn Capital Management, which manages $4.5 billion. ``That's critically positive.''

The S&P 500 added 1.7 percent this week as Cisco Systems Inc. and Procter & Gamble Co. joined the majority of companies in beating estimates, the Federal Reserve predicted inflation will ease through next year and crude oil declined 7 percent.

Fuel Costs

After falling to a 2 1/2-year low on July 15, the benchmark for U.S. equities rebounded 5.5 percent. It's still down 13 percent this year as record fuel costs and bank losses stemming from the U.S. mortgage crisis prompted analysts to lower profit estimates.

Crude oil dropped 3.1 percent to $116.32 a barrel in New York, heading for its fourth decline in five weeks. Oil, metal and crop prices fell as the dollar jumped to a five-month high against the euro.

Consumer stocks rose as crude slipped. Home Depot, the world's largest home-improvement retailer, rose 4.4 percent to $25.56 for the biggest gain in the Dow average. Macy's, the second-largest U.S. department store chain, rose 5 percent to $19.86. Gap, the largest U.S. clothing retailer, climbed 3.7 percent to $17.55, the highest since June 19.

GM, the biggest U.S. automaker, added 3 percent to $10.04. UAL gained 94 cents to $10.55.

Earnings at companies in the S&P 500 will advance 2.3 percent this year, according to data compiled by Bloomberg. That compares with expectations for a 15 percent increase at the end of last year.

Earnings Watch

Second-quarter earnings at S&P 500 companies that have released results since July 8 are down 21 percent on average from a year earlier, according to data compiled by Bloomberg. Profits at consumer discretionary companies have declined 80 percent as higher fuel and food costs crimp household budgets. Financial earnings are lower by 86 percent.

Fannie Mae fell 4.3 percent to $9.52. The government- sponsored company, whose shares closed at a 17-year low of $7.07 on July 15, reported a second-quarter net loss of $2.3 billion, or $2.54 a share. Before a one-time gain, the loss was $2.51 a share, compared with the 72-cent average estimate of 10 analysts in a Bloomberg survey.

While three-quarters of S&P 500 companies that have reported results beat or met the average analyst estimates, the misses have been larger in size, chiefly at automobile companies and consumer finance companies. In aggregate, results at the 422 companies that have reported fell short of analyst estimates by 6.8 percent. That's worse than in the first quarter, when aggregate profit missed the estimates by 2.7 percent.

To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net.