U.S. Stocks Jump on Valuations; Alcoa, Barrick Gold Advance

By Lynn Thomasson

Oct. 28 (Bloomberg) -- U.S. stocks rallied, following gains in Asian and European markets, as the cheapest valuations in more than two decades lured investors back into equities.

Alcoa Inc., the largest U.S. aluminum producer, jumped 5 percent after the shares slid to their lowest price-to earnings ratio on record. Barrick Gold Corp. and Exxon Mobil Corp. advanced at least 4.5 percent as the precious metal rose and crude oil rebounded from a 17-month low. Bank of New York Mellon Corp. and Citigroup Inc. advanced after banks' borrowing costs decreased and investors speculated the Federal Reserve will cut its benchmark rate tomorrow to stimulate the sagging economy.

The Standard & Poor's 500 Index added 23.65, or 2.8 percent, to 872.57 at 9:33 a.m. in New York. The Dow Jones Industrial Average climbed 219.67, or 2.7 percent, to 8,395.44. The Nasdaq Composite Index increased 47.26, or 3.1 percent, to 1,553.16. About 35 stocks rose for each that fell on the New York Stock Exchange.

``We're in the camp that believes a bottoming process is in place,'' said Leo Grohowski, chief investment officer for the wealth management unit of Bank of New York Mellon, which manages $162 billion. ``Unless we really thought the banks were going under, there's an awful lot of bad news that is already priced into the shares.''

A 3.2 percent drop yesterday sent the S&P 500 to the lowest level since March 2003 and left it with a 42 percent decline for the year. The index opened today valued at 10.7 times estimated profit, the cheapest compared with the multiple using trailing profit since 1985. The slump prompted value investor Jeremy Grantham to say yesterday shares are approaching a ``once-in-a- lifetime investing opportunity.''

$12 Trillion Lost

Equities have tumbled around the world this month, wiping out more than $12 trillion of market value, as a seizure in money markets sparked by $678 billion of asset writedowns and credit losses at banks spurred concern the global economy is headed for a recession. The S&P 500 has slumped 26 percent in October.

The Fed is due to announce its decision on interest rates tomorrow following a two-day meeting. Futures trading suggests a 46 percent chance that the central bank will cut the target by three-quarters of a percentage point, to 0.75 percent. By contrast, only one of 64 economists in a Bloomberg survey foresees that outcome. The rest of the bets in Fed funds futures are for a half-point cut.

Alcoa added 46 cents to $9.50. A 75 percent drop this year left the stock valued at 4.86 times earnings as of yesterday, the cheapest on record.

`Bottom Fishing'

``There is some bottom fishing going on,'' said Tom Hougaard, chief market strategist at City Index, a spread- betting firm in London. ``I'm bullish. I was looking for a low towards the end of October, but it's still going to be tumultuous,'' he said in a Bloomberg Television interview.

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