U.S. Stocks Rise as Housing Data Beat Estimates

By Rita Nazareth - Dec 21, 2011 5:23 AM GMT+0700

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Dec. 20 (Bloomberg) -- Bloomberg's Deborah Kostroun reports on the performance of the U.S. equity market today. U.S. stocks climbed, giving the Standard & Poor’s 500 Index its biggest gain of the month, as better-than-estimated housing starts added to expectations the world’s largest economy will weather Europe’s debt crisis. Michael McKee also speaks. (Source: Bloomberg)

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Dec. 20 (Bloomberg) -- Barry Ritholtz, chief executive officer at FusionIQ, talks about the U.S. financial industry, the gold market and the outlook for stocks and housing. He speaks with Tom Keene on Bloomberg Television's "Surveillance Midday." (Source: Bloomberg)

U.S. stocks climbed, giving the Standard & Poor’s 500 Index its biggest gain of the month, as better-than-estimated housing starts added to expectations the world’s largest economy will weather Europe’s debt crisis.

Homebuilders PulteGroup Inc. (PHM) and Lennar Corp. (LEN) rose more than 6.3 percent. Caterpillar Inc. (CAT), Chevron Corp. (CVX) and Bank of America Corp. (BAC) rallied at least 3.7 percent, pacing gains among the biggest companies. Jefferies Group Inc. (JEF) surged 23 percent as the investment bank reported profit that beat estimates. Sprint Nextel (S) Corp. jumped 9.3 percent and Juniper Networks Inc. (JNPR) added 8.9 percent as AT&T Inc. pulled its bid for T-Mobile USA.

The S&P 500 rose 3 percent to 1,241.30 at 4 p.m. New York time, as 492 out of 500 stocks gained. The gauge lost 1.2 percent yesterday. The Dow Jones Industrial Average added 337.32 points, or 2.9 percent, to 12,103.58 today. The Russell 2000 Index of small companies rallied 4.2 percent to 738.22.

“The housing report is one more brick in the wall and an important indication of economic strengthening,” Mark Luschini, chief investment strategist at Philadelphia-based Janney Montgomery Scott LLC, which manages $54 billion, said in a telephone interview. “Things are improving and that’s helping to buttress better the impact of Europe’s crisis.”

Stocks gained (SPX) as builders broke ground in November on more houses than at any time in the past 19 months. Concern about Europe’s debt crisis eased today as German business confidence unexpectedly grew and Spain sold 5.64 billion euros ($7.36 billion) of bills, more than the maximum target.

Average Since 1954

Today’s rally trimmed this year’s drop in the S&P 500 to 1.3 percent. The benchmark measure had tumbled 12 percent from a three-year high in April through yesterday as Europe struggled to tame its debt crisis. It’s trading for 13.1 times reported earnings, compared with the average since 1954 of 16.4 times, according to data compiled by Bloomberg.

“You’re getting a discount to buy equities,” said Michael Strauss, who helps oversee about $27 billion of assets as the chief investment strategist at Commonfund in Wilton, Connecticut. He spoke in a telephone interview. “I’m hoping we get some separation of the U.S. economic events from some of the European events. Stocks are very reasonably priced.”

The Morgan Stanley (MS) Cyclical Index of companies which tend to benefit the most from economic growth added 3.8 percent. A measure of homebuilders in S&P indexes jumped 6.4 percent as 11 of its 12 stocks gained. PulteGroup climbed 10 percent to $6.17 for the biggest increase in the S&P 500. Lennar advanced 6.3 percent to $19.68. Caterpillar rose 5.1 percent to $91.73. Chevron rose 4 percent to $103.67.

Banks Rebound

The KBW Bank Index (BKX) of 24 stocks climbed 4.1 percent. Bank of America, which yesterday ended at the lowest level since March 2009, gained 3.7 percent to $5.17. JPMorgan Chase & Co. (JPM) added 4.9 percent to $32.21.

Jefferies rallied 23 percent, the most since 2008, to $14.50. The investment bank that’s been fighting speculation about its financial strength rose after fiscal fourth-quarter profit beat estimates on a recovery in fixed-income trading. Jefferies may not have to raise more equity after reducing assets on its balance sheet, Sean Egan of Egan-Jones Ratings Co. said today on CNBC.

Phone shares rose as AT&T (T)’s $39 billion bid to acquire Deutsche Telekom AG’s T-Mobile USA came to an end yesterday. AT&T failed to convince the Justice Department, which sued to block the transaction in August, that it could remedy the market impact of absorbing T-Mobile. AT&T added 1.3 percent to $29.12.

Sprint, Juniper

Sprint Nextel jumped 9.3 percent to $2.36. Verizon Communications Inc. (VZ) gained 1.5 percent to $39.21. Juniper Networks, a maker of networking equipment, surged 8.9 percent to $19.74. Dish Network Corp. (DISH) soared 9.2 percent to $27.46 after Stifel Nicolaus & Co. said AT&T may seek to acquire the second- largest U.S. satellite-TV company to gain wireless spectrum.

Apple Inc. (AAPL) rallied 3.6 percent to $395.95. The Cupertino, California-based company won a patent-infringement ruling that bans some HTC Corp. smartphones from the U.S. starting next year, bolstering efforts to prove that devices running Google Inc.’s Android operating system copy the iPhone.

Oracle Corp. (ORCL) tumbled 10 percent to $26.19 at 5:23 p.m. New York time. The second-largest software maker reported quarterly sales and profit that missed analysts’ estimates as customers held off on purchasing database and applications software. The shares rose 1.9 percent to $29.17 in regular trading.

CVS Caremark Corp. rose 8.9 percent to $39.80. The largest U.S. distributor of prescription drugs boosted (CVS) its quarterly dividend to 16.25 cents a share from 12.5 cents a share.

Red Hat

Red Hat Inc. (RHT) tumbled 8.9 percent, the biggest decline in the S&P 500, to $41.95. The largest seller of the open-source Linux operating system reported third-quarter billings and deferred revenue that missed some analysts’ estimates.

Today’s equity rally brought the S&P 500 above its average price of the past 50 days. Still, the index needs to rise above its 200-day average, a level where the gauge has stalled three times since October, to sustain its rally, Janney Montgomery Scott LLC said.

“A closing breakout above 1,260 is what the markets need,” Dan Wantrobski, the Philadelphia-based director of technical research at Janney, wrote in a report today. “A convincing breakout above this threshold would be bullish for U.S. equities overall.”

The S&P 500’s advance from its 2011 low on Oct. 3 faltered after the gauge closed above the 200-day threshold on Oct. 27, Oct 28 and Nov. 8. The index also traded above the level on an intraday basis for three days starting Dec. 5, only to retreat amid concern that European leaders may not be able to contain the region’s credit crisis.

To contact the reporter on this story: Rita Nazareth in Sao Paulo at rnazareth@bloomberg.net

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