U.S. Stocks Gain as Commodity Rally Offsets Auto-Rescue Concern

By Whitney Kisling

Dec. 10 (Bloomberg) -- U.S. stocks gained, recovering half of yesterday’s slide, as higher energy and metal prices triggered a rally in commodity producers that overshadowed concern Congress won’t rescue the nation’s auto industry.

Chesapeake Energy Corp. jumped 23 percent and Peabody Energy Corp. rallied 19 percent as crude and coal increased. Freeport-McMoRan Copper & Gold Inc., the largest publicly traded copper producer, climbed 16 percent. General Motors Corp. reversed a gain of more than 6 percent and Ford Motors Co. pared most of its advance as Republican senators vowed to stall the rescue bill.

“Despite a recessionary slowdown, the long-term outlook for energy still remains positive,” said Eric Teal, chief investment officer at First Citizens BancShares Inc. in Raleigh, North Carolina, which manages $5 billion.

The Standard & Poor’s 500 Index increased 1.2 percent to 899.22, with producers of energy and raw materials leading gains among 10 industry groups. The Dow Jones Industrial Average added 70.09 points, or 0.8 percent, to 8,761.42. The MSCI World Index of 23 developed markets rose 1.3 percent to 899.09.

The S&P 500 extended its rebound from an 11-year low to 21 percent this week, marking a technical end to a 14-month bear market, as President-elect Barack Obama stepped up proposals to pull the economy out of a recession. The index has tumbled 43 percent from its 2007 record as the collapse of the subprime mortgage market curbed earnings for five straight quarters.

The S&P 500 slid 2.3 percent yesterday after companies from FedEx Corp. to Danaher Corp. forecast earnings that disappointed investors as the deepening recession crimps sales.

Energy Rally

Chesapeake Energy, the second-biggest independent U.S. natural-gas producer, surged 23 percent to $17.83 as gas climbed more than 2 percent.

Chevron Corp., the second-largest U.S. energy company, advanced 3.8 percent to $78.44. The S&P 500 Energy Index increased 4.7 percent, the biggest rally among 10 industries.

Oil futures for January delivery rose 3.4 percent to $43.52 a barrel in New York, helped by speculation Russia and the Organization of Petroleum Exporting Countries will cut production to end the five-month, $100 slump in prices.

Coal producers Peabody Energy Corp. and Massey Energy Co. gained as the fuel rose to the highest in seven days in Europe. Peabody added 19 percent to $25.91, while Massey Energy rose 16 percent to $15.71. Consol Energy Inc. rallied 14 percent to $31.67.

Freeport, Alcoa

Freeport-McMoRan, the largest publicly traded copper producer, rallied 16 percent to $22.89. Raw-material producers in the S&P 500 added 2.7 percent collectively, the second- biggest gain among 10 industries. Copper climbed almost 3 percent in New York.

Alcoa Inc., the biggest U.S. aluminum company, gained the most in the Dow, climbing 6.8 percent to $10.20. Home Depot Inc. gained the second-most, adding 4.7 percent to $24.29.

Yahoo! Inc., the owner of the second-most popular U.S. Internet search engine, climbed 9.9 percent to $13.40 after a person familiar with the plan said the company will begin cutting about 1,500 jobs today in response to a slowdown in Internet advertising. While the shares have fallen 42 percent this year, Yahoo still has a price-to-earnings ratio based on reported results of 31.2, which is 12th highest in the S&P 500.

Office Depot Inc. rallied 9.1 percent to $2.65 after saying it will close 112 locations, or almost 10 percent, of its North American stores and cut 2,200 jobs. The world’s second-largest office-supplies retailer has fallen 81 percent this year as it posted profit declines or losses in the past six quarters.

‘Car Czar’

GM, the biggest U.S. automaker, slumped 2.1 percent to $4.60 after earlier rallying as much as 6.4 percent. Ford, the second-largest, gained 2 cents, or less than 1 percent, to $3.25 after climbing as much as 5.9 percent.

The rescue legislation calls for the appointment of a so- called car czar who could force GM and Chrysler LLC into Chapter 11 bankruptcy if the companies don’t come up with a restructuring plan by the end of March.

Ohio Senator George Voinovich said Republican votes are “not there” for the auto bill. Louisiana Senator David Vitter and several other Republican senators, including Richard Shelby of Alabama and Jim DeMint of South Carolina, oppose the measure. Democratic Senator Max Baucus of Montana, the chairman of the Finance Committee, said he will vote against the measure.

‘More Uncertainty’

“People had been prepared for some form of loan that would go to March, and now it just adds a little more uncertainty,” Michael Holland, the New York-based chairman of Holland & Co., which oversees more than $4 billion, said of the auto bailout. “The uncertainty is really the key.”

American Express Co., the credit-card company most dependent on capital markets for cash, lost 7.4 percent to $21.56. Citigroup Inc. analyst Donald Fandetti rated the stock “sell” in new coverage, saying earnings will be hurt as the economy slows and the turmoil in credit markets eliminates cheap sources of funds.

XL Capital Ltd. slid 33 percent to $3.90, the lowest since the insurer went public in 1991. The property and casualty underwriter has been buffeted this year by losses from the financial crisis and credit-ratings downgrades. XL hired Goldman Sachs Group Inc. to gauge interest from potential bidders, said the people, who declined to be identified because the talks are confidential.

Forecast Cuts

Electronic Arts Inc. lost 12 percent to $17. The world’s second-largest maker of video games predicted fiscal 2009 revenue and profit will be lower than previously forecast because of slow holiday sales in North America and Europe. The company said it will reduce costs by making fewer games and increasing job cuts.

Eastman Kodak Co. slumped 8.5 percent to $6.59. The 128- year-old photography company cut its second-half and full-year sales and profit forecasts on the deepening global recession and changes in the value of the U.S. dollar.

Nike Inc., the world’s largest athletic-shoe maker, slipped 4.6 percent to $50.50 after it was downgraded to “neutral” from “buy” at Bank of America Corp., which cited a slowdown in demand.

S&P 500 companies reported an average 18 percent decline in profits in the third quarter, prompting analysts to cut estimates for next year. They now project profit growth of 8.2 percent for S&P 500 companies in 2009, about one-third of their forecast of 23 percent at the end of the third quarter, according to data compiled by Bloomberg.

The global stock slump may have further to go, according to Tobin’s Q ratio, which compares the market value of companies to the cost of their constituent parts, CLSA Ltd. strategist Russell Napier said.

The ratio, developed in 1969 by Nobel Prize-winning economist James Tobin, shows the S&P 500 is still too expensive relative to the cost of replacing assets, said Napier. While the 39 percent drop in the index this year pushed equity prices below replacement cost, history suggests the ratio must sink further as deflation sets in, he said. The S&P may plunge another 55 percent to 400 by 2014, Napier said.

To contact the reporter on this story: Whitney Kisling in New York at wkisling@bloomberg.net.