By Eric Martin and Kayla Carrick
July 16 (Bloomberg) -- Rising retail sales and record profits at Goldman Sachs Group Inc. are outweighing insider selling and bearish stock-options bets as the Standard & Poor’s 500 Index stages its biggest rally in four months.
The benchmark gauge for U.S. equities climbed 3 percent yesterday to complete the steepest three-day advance since March. Retail sales rose 0.6 percent last month, topping the 0.4 percent estimate of economists surveyed by Bloomberg. Goldman Sachs reported earnings of $3.44 billion. Intel Corp. said third-quarter sales will be up to 13 percent higher than analysts predicted.
As recently as four weeks ago, money managers said the longest streak in net stock sales by corporate insiders in two years, the biggest gap between the cost of bullish and bearish stock options since August 2008 and rising unemployment would drive the S&P 500 down. The index, which fell 38 percent in 2008 and another 25 percent in the first two months of the year, is now up 3.3 percent for 2009.
“The human desire for hope springs eternal,” said Peter Sorrentino, who helps oversee $13.8 billion at Huntington Asset Management in Cincinnati. “Some of this is over-complacency by people who sat out way too long.”
Sorrentino said he hasn’t sold an options position that pays off if the S&P 500 slips to 775 in December, a 17 percent decrease from yesterday’s close. He said two weeks ago that he expected the index to fall more than 10 percent from its July 2 price of 896.42.
JPMorgan, CIT
U.S. futures fluctuated between gains and losses today as earnings from New York-based JPMorgan Chase & Co. that beat analysts’ estimates offset speculation that New York-based CIT Group Inc. is on the verge of bankruptcy. The S&P 500 contract had advanced as much as 0.3 percent and retreated as much as 0.7 percent as of 7:48 a.m. in New York.
The 14-week, 40 percent rally in the S&P 500 to its 2009 high on June 12 spurred concern among some investors that the gains came too quickly. The advance was the steepest since the 1930s, according to data compiled by Bloomberg.
The S&P 500 slid 7.1 percent from its 2009 peak to 879.13 on July 10. It has rebounded to the highest level since June 12, when insiders at S&P 500 companies were selling stock for the 14th straight week, the longest streak in two years, according to data compiled by Princeton, New Jersey-based InsiderScore.com.
Lehman’s Collapse
The gauge has gained 3.8 percent since July 6, when the price of options to protect against a 10 percent decline in the index exceeded bets on an advance by the most since August 2008. That was a month before the collapse of New York-based securities firm Lehman Brothers Holdings Inc. in the biggest U.S. bankruptcy.
Profits that are beating analyst projections helped push the index up 6 percent since companies began reporting earnings on July 8. Almost 67 percent have released results that surpassed estimates, compared with an average of 59 percent since 1993, according to data compiled by Bloomberg.
“The rally is due to second-quarter earnings coming out that are showing some signs of strength,” said Jason Cooper, who manages $2.5 billion at 1st Source Investment Advisors in South Bend, Indiana. “That’s something people are looking toward as far as an indication of where we were for the second quarter and where we might be going for the third.”
Cooper cited insider selling as a reason for investor caution after it rose in the week ended June 16.
Intel, Goldman Sachs
Intel, based in Santa Clara, California, added 7.3 percent to $18.05 yesterday, the highest price since October. The world’s biggest chipmaker said third-quarter revenue will reach as much as $8.9 billion as computer makers boost orders. Analysts projected $7.86 billion based on the average of estimates compiled by Bloomberg.
Goldman Sachs climbed 9.4 percent this week. The bank posted record earnings as revenue from trading and stock underwriting reached all-time highs less than a year after the firm took $10 billion in U.S. rescue funds, and Meredith Whitney recommended buying the shares.
Whitney, the banking analyst who became one of Wall Street’s first bears when credit markets started to freeze in 2007, spurred a 9.3 percent jump in Bank of America Corp. on July 13. She said the Charlotte, North Carolina-based lender was the “cheapest” among U.S. banks.
‘Scales Have Tipped’
“The scales have tipped to where people are looking for reasons to be bullish,” said Michael Levine, a money manager at New York-based OppenheimerFunds Inc., which oversees about $145 billion. “There’s a sense of guarded optimism.”
Levine warned that the S&P 500 had risen “too far, too fast” in a July 1 interview.
Fund managers said at the end of June that lockstep gains in commodities and stocks created the risk of a replay of last year, when equities and raw materials posted their biggest retreats in half a century. Since then, the S&P 500 has added 1.5 percent.
Joseph Keating of RBC Bank, who warned on June 17 that insider selling would precede declines in stocks, said the size of last year’s losses is helping drive the market now. The S&P 500 has fallen 40 percent since its all-time high 21 months ago.
“We’re still down from the peak in stock prices from October 2007,” said Keating, who helps oversee $4 billion as chief investment officer of Raleigh, North Carolina-based RBC Bank. “An awful lot of bad news continues to be discounted.”
To contact the reporters on this story: Eric Martin in New York at emartin21@bloomberg.net; Kayla Carrick in New York at kcarrick1@bloomberg.net.
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