By Whitney Kisling
Dec. 16 (Bloomberg) -- U.S. stocks rallied and the Standard & Poor’s 500 Index climbed to a five-week high after the Federal Reserve cut its benchmark interest rate to a record low and said it will employ “all available tools” to revive the economy.
Citigroup Inc. jumped 11 percent and JPMorgan Chase & Co. rose 13 percent after the central bank said it “stands ready to expand” purchases of mortgage-backed securities. Goldman Sachs Group Inc. surged 14 percent after its first quarterly loss as a public company was smaller than some analysts’ estimates. Boeing Co. and Intel Corp. added more than 7.2 percent as all 10 industry groups in the S&P 500 increased at least 2.2 percent following the Fed’s announcement.
“A big, widespread, explosive, incendiary shell has come out of the Fed’s cannon,” said Frederic Dickson, who helps oversee about $19 billion as chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon. “It’s a bloody big deal. This is the kick-it-up-a-notch moment.”
The S&P 500 added 5.1 percent to 913.18, its highest close since Nov. 10. The advance put the benchmark index above its average level during the past 50 days for the first time since September. The Dow Jones Industrial Average gained 359.61 points, or 4.2 percent, to 8,924.14. The Russell 2000 Index of small companies increased 6.7 percent.
The Fed cut its target rate for overnight loans between banks to a range of zero to 0.25 percent. The Fed’s decision came after simultaneous recessions in the U.S., Europe and Japan dragged the S&P 500 down almost 45 percent from its 2007 record and sent benchmark indexes from Brazil to Bangkok into bear markets.
Fed-Day Rally
Today’s advance in the S&P 500 was its biggest on a Fed rate-decision day since 1994, when the central bank began announcing its target on the same day the decision was made, according to Bespoke Investment Group LLC. About 1.5 billion shares changed hands on the New York Stock Exchange, 5 percent fewer than the three-month daily average.
Citigroup climbed 83 cents to $8.23, while JPMorgan jumped $3.72 to $32.35. The S&P 500 Financials Index climbed 11 percent, the steepest gain among 10 industries and the group’s biggest advance since Nov. 24.
Boeing, the world’s second-largest commercial jet maker, added $3.16 to $41.90, while Intel, the largest chipmaker, rose $1.05, the most since Oct. 30, to $15.64.
‘Rekindle the Confidence’
The Fed said in its statement that the recession is likely to warrant exceptionally low levels of the federal funds rate “for some time.” The statement noted that the Fed has already announced it will purchase agency debt and mortgage-backed securities, and said the central bank is ready to expand the program. Policy makers continue to weigh the potential benefits of buying longer-term Treasury securities, the statement said.
“They’re trying to rekindle the confidence of consumers and businesses, and that ultimately drives profits in the stock market,” said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland, Ohio, which manages $30 billion.
Treasury notes rallied, sending yields to record lows, on expectations the Fed will buy the securities to force borrowing costs lower. The dollar weakened to $1.41 against the euro for the first time in two months.
Goldman’s Loss
Goldman Sachs added $9.54, the most since Nov. 24, to $76. Its loss of $4.97 a share in the three months ended Nov. 28 was the company’s first quarterly deficit since going public in 1999 as asset values and investment-banking fees declined. The average estimate of 18 analysts surveyed by Bloomberg was for a loss of $3.73, with UBS AG’s Glenn Schorr estimating a deficit of as much as $5.50 a share.
Compensation and benefits, the firm’s biggest expense, fell in the quarter as the company cut 2,500 jobs and lowered average employee pay by 45 percent to $363,654. The company that set a Wall Street profit record in 2007 converted to a bank-holding company and accepted $10 billion from the U.S. government earlier this year as investors lost confidence in companies that rely on debt-market funding.
Morgan Stanley, the Goldman Sachs competitor that also became a bank, rallied 18 percent to $16.13. The firm will report fourth-quarter results tomorrow. Analysts estimate a loss of 34 cents a share, excluding some items, according to a Bloomberg survey.
Goldman Sachs is still down 65 percent in 2008, while Morgan Stanley has lost 70 percent.
CIT Group Jumps
CIT Group Inc. added 13 percent to $4.65 after the commercial finance firm that ran short of cash this year said it generated $398 million of regulatory capital in an exchange of equity units as it seeks to qualify for as much as $2.5 billion in federal bailout funds.
XL Capital Ltd. jumped the most in the S&P 500, adding 27 percent to $3.68. The Bermuda-based insurer that’s lost 93 percent of its value this year said it doesn’t intend to seek additional capital at this time.
Financial companies have fallen the most among the 10 industries in the S&P 500 this year, losing 56 percent, followed by companies that produce raw materials, which have fallen 44 percent in the same period.
CF Industries Holdings Inc. gained 12 percent to lead material companies up 6.1 percent today. The U.S. maker of nitrogen-based crop nutrients rallied along with other fertilizer companies after their shares were upgraded at Merrill Lynch & Co., which said “fundamentals are nearing a bottom.”
Potash Rally
Potash Corp. of Saskatchewan Inc., the world’s largest crop-nutrient producer, rallied 11 percent to $76.91. Mosaic Co., the world’s largest producer of phosphates, gained 14 percent to $35.96, while Terra Industries Inc., the biggest U.S. maker of liquid-nitrogen fertilizer, added 19 percent to $17.58. Intrepid Potash Inc., the largest producer of the crop nutrient in the U.S., rose 6.1 percent to $19.80.
Best Buy Co. climbed 18 percent, the most since January 2001, to $27.68. The electronics retailer affirmed its full-year earnings forecast and reported third-quarter profit, excluding some items, of 35 cents a share, beating the average analyst estimate by 49 percent. The company also said it’s offering voluntary severance packages to almost all workers and slashing capital spending as part of a “significant” cost-cutting plan.
Gilead Sciences Inc., the leading maker of AIDS treatments, climbed 7.9 percent to $47.87. Merrill Lynch & Co. raised its recommendation on the stock to “buy” from “neutral.”
GE Maintains Dividend
General Electric Co. jumped 5.7 percent to $17.92. The world’s biggest maker of power-plant turbines won an order valued at about $3 billion to provide electricity-generating equipment and services to Iraq. The company also said it will maintain its dividend of $1.24 a share in 2009.
General Motors Corp., the biggest U.S. automaker, rose 4.2 percent to $4.25. The Treasury may adopt a plan that would let a car czar or the Treasury Secretary force GM and Chrysler LLC into bankruptcy if the companies don’t show they can survive without government aid. GM and Chrysler would be required to submit viability plans by March 31 or lose any further U.S. support, Carl Levin, a Democratic senator from Michigan, told reporters in Detroit.
Only 15 S&P 500 companies fell today, led by cigarette- makers Lorillard Inc. and Altria Group Inc., which slid for a second session after the U.S. Supreme Court ruled smokers can sue over the marketing of “light” cigarettes. Lorillard dropped 4.7 percent to $55.20, while Altria slumped 4.4 percent to $14.54.
Eaton Corp. dropped 2.2 percent to $42.96 after the maker of power-distribution equipment and car-engine valves lowered its fourth-quarter profit estimates. The company cut 3,400 jobs, or 5.3 percent of its workforce this year amid weakening demand.
Worst Year Since Depression
The S&P 500 has fallen 38 percent in 2008, poised for its worst year since the Great Depression, after losses and writedowns at the biggest global financial companies reached almost $1 trillion and earnings at U.S. companies dropped for five straight quarters, matching the longest streak on record.
The S&P 500 has climbed more than 21 percent since slumping to an 11-year low on Nov. 20, gains that short seller Jim Chanos said will falter as President-elect Barack Obama’s infrastructure spending plan disappoints investors. Chanos said he’s adding to his short-sale bets against construction, cement and steel companies.
“It will not be profitable to the extent that people think,” Chanos, whose Ursus Fund has risen more than 50 percent this year, told Bloomberg Television. “People are forgetting that there are always promises of infrastructure plans.”
More than three-quarters of money managers expect U.S. stocks to advance next year, while 72 percent say the market is undervalued, according to Russell Investments’ quarterly survey of investors whose firms oversee about $10 trillion.
To contact the reporter on this story: Whitney Kisling in New York at wkisling@bloomberg.net.
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