S&P 500 Poised to Rally From 11-Year Low as Citigroup Advances

By Michael Patterson and Darren Boey

Nov. 21 (Bloomberg) -- The Standard & Poor’s 500 Index was poised to rally from its lowest level in 11 years as investors speculated Citigroup Inc. may sell part or all of itself, the biggest mortgage-finance companies said they will suspend foreclosures and Dell Inc.’s profit topped analysts’ estimates.

Citigroup, which tumbled 84 percent this year in New York trading, climbed 13 percent in Germany as a person familiar with the matter said the bank’s board will meet today to discuss options. Financial companies also got a boost after Fannie Mae and Freddie Mac, which own or guarantee $5.2 trillion of the $12 trillion U.S. home mortgage market, said they will suspend foreclosures and evictions over the holidays. Dell, the second- largest personal-computer maker, added 4.5 percent.

“I would hope that we’ve reached some kind of bottom,” Malcolm Polley, who oversees about $1 billion as chief investment officer of Stewart Capital Advisors, said in an interview on Bloomberg Television from Pittsburgh. “Citi needs to do something. Whether breaking it up or selling it is the right answer, it’s too early to decide.”

Futures on the S&P 500 expiring in December gained 2.3 percent to 765.2 at 8:07 a.m. in New York. Dow Jones Industrial Average futures added 2.4 percent to 7,670, while Nasdaq-100 Index futures rose 1.3 percent to 1,052.5. The MSCI Asia Pacific Index climbed 3.3 percent and Europe’s Dow Jones Stoxx 600 Index slipped 0.3 percent.

2008 Tumble

The S&P 500 extended its 2008 tumble to 49 percent yesterday, poised for the worst annual decline in its 80-year history, after economic reports depicted a deepening recession and lawmakers postponed a vote on a plan to salvage the auto industry. Citigroup, which has about $2 trillion of assets, fell 26 percent to a 15-year low as concern deepened more companies and consumers will default as the economy worsens.

“A merger for Citigroup can be positive because it will leave a financial institution with a far larger resource base,” said Jonathan Ravelas, a strategist at Banco de Oro Unibank Inc. in Manila, which has more than $6 billion in trust assets under management.

This year’s tumble in the S&P 500 has dragged down 97 percent of its stocks and all 64 of its so-called level-three industries, groups such as “distributors” and “leisure equipment.” More stocks decreased in the current bear market than in the 49 percent rout after the technology bubble burst in 2000.

The benchmark index for U.S. equities has dropped to within 10 points of its level on Dec. 5, 1996, the day former Federal Reserve Chairman Alan Greenspan questioned in a speech whether the U.S. stock market suffered from “irrational exuberance.”

Citigroup Rises

The S&P 500 has dropped 14 percent this week, poised for its third straight weekly decline. The Dow average has declined 11 percent, while the Nasdaq Composite Index is down 13 percent.

Citigroup climbed 59 cents to $5.30. The board, under Chairman Win Bischoff and lead independent director Richard Parsons, will meet at Citigroup’s headquarters in New York, said the person, who declined to be identified because the deliberations are private.

The panel may consider selling off pieces of the bank or the entire company, the Wall Street Journal reported, citing people familiar with the matter. The New York Times reported that bank executives are not actively considering selling or splitting the firm.

Citigroup spokeswoman Christina Pretto declined to comment on the board meeting. She reiterated a statement made by the New York-based bank earlier this week that it has “a very strong capital and liquidity position and a unique global franchise.”

JPMorgan Chase & Co. advanced 4.4 percent to $24.40 and Bank of America Corp. added 4.9 percent to $11.80.

Fannie, Freddie

Fannie Mae and Freddie Mac, the mortgage-finance companies seized by the U.S. government, said the six-week halt on foreclosures will begin Nov. 26, a day before the U.S. Thanksgiving holiday, and last through Jan. 9. The hiatus is designed to give servicers more time to implement a streamlined loan modification program for struggling borrowers.

Dell added 44 cents to $10.25. Third-quarter net income of 37 cents a share beat the 33-cent average of analysts’ estimates in a Bloomberg survey. Dell has cut 13 percent of its workforce since its high point last year, helping bolster earnings even as sales missed analysts’ estimates by more than $1 billion.

Obama’s Plan

President-Elect Barack Obama’s transition team is exploring a swift, prepackaged bankruptcy for automakers as a possible solution to the industry’s financial crisis, according to a person familiar with the matter.

Obama’s team has already contacted at least one bankruptcy- law firm to say that Daniel Tarullo, a professor at Georgetown University’s law school who heads Obama’s economic policy working group, would call to discuss the workings of a so-called prepack, according to this person.

General Motors Corp., the biggest U.S. automaker, climbed 3.5 percent to $2.98 and smaller rival Ford Motor Co. gained 4.3 percent to $1.45.

Exxon Mobil Corp., the biggest U.S. oil company, gained 2.7 percent to $70.35 and Chevron Corp., the second-largest, added 3.3 percent to $66.55.

Oil rose for the first time in six days amid speculation OPEC members will cut production. Crude oil for January delivery rose as much as $1.23, or 2.5 percent, to $50.65 a barrel in New York.

Gap Inc. may be active. The largest U.S. clothing retailer said third-quarter profit climbed 3.4 percent as the company reduced markdowns of sweaters, jeans and khaki pants. The owner of the Old Navy and Banana Republic chains reiterated its forecast for profit of $1.30 to $1.35 a share for the year ending Jan. 31.

Goldman’s Forecast

Goldman Sachs Group Inc. increased its recession estimates, saying gross domestic product is declining at a 5 percent annual rate in the current quarter and will drop 3 percent and 1 percent in the next two quarters. Unemployment will reach 9 percent by the fourth quarter of 2009, Goldman economists led by Jan Hatzius wrote in a research note today.

The S&P 500 was valued at 16.3 times reported earnings at yesterday’s closing level, the cheapest since 1995. The Stoxx 600 closed yesterday at 8.3 times profit, below the four-year average of 14 times. The MSCI World Index of 23 developed countries trades at 10.7 times earnings.

To contact the reporter on this story: Michael Patterson in London at mpatterson10@bloomberg.net; Darren Boey in Hong Kong at dboey@bloomberg.net.