U.S. Stocks Gain on Consumer Confidence

By Kaitlyn Kiernan and Nikolaj Gammeltoft - Nov 12, 2011 12:01 PM GMT+0700

U.S. stocks rose this week, restoring the year-to-date gain for the Standard & Poor’s 500 Index, as improving economic data and leadership changes in Greece and Italy bolstered investor optimism.

Walt Disney Co. (DIS) and Cisco Systems Inc. (CSCO) advanced more than 5.4 percent, helping lead the Dow Jones Industrial Average (INDU) higher, after reporting better-than-estimated profits. Health- care stocks advanced the most in the S&P 500 as Merck & Co. gained 5.7 percent after increasing its dividend. E*Trade Financial Corp. slipped 14 percent after the board rejected putting the company up for sale.

The S&P 500 rose 0.9 percent to 1,263.85, overcoming a 3.7 percent decline on Nov. 9 that was the largest one-day loss since Aug. 18. The Dow advanced 170.44 points, or 1.4 percent, to 12,153.68 this week.

“With abated fears on Europe and abated fears on the U.S. economy, there is a general sense that the world is not going to come to an end,” Uri Landesman, who helps oversee $1 billion as managing general partner of New York-based hedge fund Platinum Partners LLP, said in a telephone interview. “Neither the bulls nor the bears are digging in their heels, so there is overreaction to the news.”

Stocks resumed the rally that drove the S&P 500 up as much as 20 percent since the first week of October. Equities gained after U.S. consumer confidence improved and Italy’s Senate approved debt-reduction measures, paving the way for a new government led by former European Union Competition Commissioner Mario Monti. Greece swore in Lucas Papademos to head a unity government.

Economic Surprises

The S&P 500 has rebounded 15 percent from a 13-month low on Oct. 3 as the Citigroup Economic Surprise Index for the U.S., which gauges whether reports are beating or trailing estimates, climbed to a seven-month high.

The benchmark measure of U.S. equities rose 2 percent yesterday, preventing a second weekly drop, after a gauge of consumer sentiment topped estimates in November and reached the highest level since June. The Labor Department said Nov. 10 that the number of Americans filing applications for unemployment benefits fell to the lowest level in seven months.

Stocks tumbled on Nov. 9 as yields on Italian government bonds surged, fueling concern European leaders will struggle to fund bailouts.

Focused on Europe

“It’s hard not to focus on the negative news from Europe, despite compelling corporate earnings reports and data at the micro level,” said David Sowerby, a fund manager with Bloomfield Hills, Michigan-based Loomis Sayles & Co., which manages more than $150 billion.

Walt Disney climbed 5.6 percent to $36.70 for the second- biggest advance in the Dow. Higher fees from pay-TV operators, advertising gains and improved results at resorts drove revenue and profit higher. Audience ratings for ESPN increased 13 percent in the quarter, according to Nielsen data provided by Barclays Plc. Disney resorts benefited from higher ticket prices and a new ship.

Viacom Inc. (VIA/B) rallied 9 percent to $44.90 for the biggest gain in the S&P 500. The owner of the MTV network and Paramount Pictures reported fourth-quarter profit and revenue that rose more than analysts estimated and boosted its stock-repurchase program by $6 billion.

Cisco, Merck

Cisco climbed 5.5 percent, third-most in the Dow, to $19.02. The world’s largest maker of networking equipment posted higher-than-estimated fiscal first-quarter profit. Chief Executive Officer John Chambers is eliminating jobs, scaling back operating expenses and revamping a management structure that slowed decision making.

Health-care companies in the S&P 500 increased 2.3 percent. Merck advanced 5.7 percent to $35.97 for the biggest increase in the Dow. The second-biggest U.S. drugmaker raised its dividend for the first time since 2004 and emphasized drug discovery in a meeting with analysts.

E*Trade lost 14 percent to $9.09. The online brokerage’s board rejected putting up for sale following a strategic review spurred by Citadel LLC, the company’s biggest shareholder. E*Trade hired Morgan Stanley in July to explore a sale and then replaced the bank with Goldman Sachs Group Inc. The broker initiated the review following Citadel’s request to address “catastrophic losses.”

Federal Budget

Computer Sciences Corp. (CSC) tumbled 18 percent to $26.48 for the biggest retreat in the S&P 500. The contractor for U.S. government agencies and companies reduced its fiscal 2012 profit forecast amid “federal budget uncertainty.”

Apple Inc. (AAPL) slumped 3.9 percent to $384.62 amid concern about a drop in supplier orders, indicating potentially weaker sales of the iPad and iPhone. Analysts at Cleveland Research Co. reduced their predictions for shipments of the iPad to 12 million from 14 million this quarter, citing information it gleaned from Apple’s suppliers. Ticonderoga Securities also said a survey of suppliers suggests slower sales of Apple gadgets.

Lowe’s Cos. advanced 7.3 percent to $23.11 for the second- biggest gain in the S&P 500. Pershing Square Capital Management LP’s Bill Ackman recommended at a conference that investors buy shares of the home-improvement retailer, according to a person who attended the presentation who declined to be identified.

“Demand for most stocks has improved, pushing prices higher,” James Stellakis, the founder and director of technical research at New York-based Technical Alpha, wrote in an e-mail. “But from a risk-reward standpoint, these gains have made stock selection much harder. Many stocks now trade midway between their recent buy and sell levels, and we can make a case for most names to rise and fall by the same amount.”

To contact the reporters on this story: Kaitlyn Kiernan in New York at kkiernan2@bloomberg.net; Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net