U.S. Stocks Rise as Housing Starts Beat Expectations

By Rita Nazareth - Dec 20, 2011 9:45 PM GMT+0700

Play Video

Dec. 20 (Bloomberg) -- Ellen Braitman summarizes the top stories this morning on the Bloomberg Business Report. (Source: Bloomberg)

U.S. stocks rose, following yesterday’s decline in the Standard & Poor’s 500 Index, amid expectations the world’s largest economy will avoid a recession as housing starts rose to the highest level in a year.

Morgan Stanley and Bank of America Corp. (BAC) added at least 3.1 percent. Jefferies Group Inc., the investment bank that’s been battling speculation about its financial strength, gained 6 percent after reporting earnings that beat estimates. AT&T Inc. (T) rose 0.5 percent after pulling its bid for T-Mobile USA. Rival Sprint Nextel Corp. rallied 4.6 percent. Red Hat Inc. (RHT), the largest seller of the open-source Linux operating system, tumbled 3.4 percent as billings missed some estimates.

The S&P 500 rose 2.2 percent to 1,231.93 at 9:44 a.m. New York time. The benchmark measure for American equities slumped 1.2 percent yesterday. The Dow Jones Industrial Average added 244.84 points, or 2.1 percent, to 12,011.10 today.

“The U.S. market is the most inviting on a global basis,” Mark Luschini, chief investment strategist at Philadelphia-based Janney Montgomery Scott LLC, which manages $54 billion, said in a telephone interview. “It’s a combination of being relatively inexpensive plus the fact that our economy is warming when Europe is going cold. When you look at the cumulative evidence, the housing report is one more brick in the wall and an important indication of strengthening.”

The S&P 500 fell 12 percent from a three-year high in April through yesterday amid concern about a global economic slowdown as Europe struggles to tame its debt crisis. The benchmark gauge is trading (SPX) for 12.7 times reported earnings, compared with its average since 1954 of 16.4 times, according to data compiled by Bloomberg.

Housing Data

Stocks rose today after a report showed that housing starts increased 9.3 percent to a 685,000 annual rate, exceeding the highest estimate of economists surveyed by Bloomberg News and the highest level since April 2010, Commerce Department figures showed today in Washington. Building permits, a proxy for future construction, also climbed to a more than one-year high.

“It looks like our economy is doing pretty good despite the challenges of Europe,” said Michael Strauss, who helps oversee about $27 billion of assets as the chief investment strategist at Commonfund in Wilton, Connecticut. “We’re seeing better economic news and the housing report fits right in line with that. The data provides confirmation that the surprise may be that housing is a pretty good contributor to economic activity. It’s another piece of news that’s helping the stock market.”

Financials Rebound

Financial companies rebounded. Morgan Stanley (MS), owner of the world’s largest brokerage, climbed 3.3 percent to $14.62, after yesterday’s 5.5 percent slump. Bank of America, which yesterday ended at the lowest level since March 2009, gained 3.1 percent to $5.14.

Jefferies rallied 6 percent to $12.51. Earnings per share excluding some items amounted to 17 cents, compared with the 14 cent average estimate (JEF) of eight analysts surveyed by Bloomberg.

The shares have plunged more than 50 percent this year as MF Global Holdings Ltd. (MF)’s $6.3 billion bet on European debt led to an Oct. 31 bankruptcy. The firm cut its sovereign securities holdings last month after Egan-Jones Ratings said it may face losses tied to the region’s debt crisis. Fitch Ratings said on Dec. 6 that Jefferies has sufficient liquidity to “weather challenging markets” and on Dec. 15 affirmed the company’s BBB rating.

Energy and raw material shares jumped as the U.S. dollar retreated, boosting the appeal of commodities. Alcoa Inc. (AA), the largest U.S. aluminum producer, increased 2.9 percent to $8.78. Schlumberger Ltd. (SLB), the world’s largest oilfield-services provider, climbed 3.6 percent to $67.40.

Higher Dividend

CVS Caremark Corp. rose 4.4 percent to $38.17. 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.

AT&T gained 0.5 percent to $28.87 after its $39 billion bid to acquire Deutsche Telekom AG’s T-Mobile USA came to an end yesterday in a phone call between the companies’ chief executive officers, according to people familiar with the matter.

AT&T’s Randall Stephenson and Deutsche Telekom’s Rene Obermann ultimately agreed the costs of continuing to fight for the deal unveiled nine months earlier were too high, given the opposition from U.S. regulators, the people said.

Rival Sprint Nextel (S) jumped 4.6 percent to $2.26.

Red Hat tumbled 3.4 percent to $44.47. Billings, a predictor of revenue, increased 23 percent from a year earlier in the period that ended Nov. 30. That was lower than the 24 percent growth projected by Walter Pritchard, an analyst at Citigroup Inc., according to a note yesterday.

Green Giant

General Mills Inc. (GIS) declined 1.8 percent to $38.87. The maker of Cheerios and Green Giant frozen vegetables reported second-quarter earnings excluding some items of 76 cents a share, missing the average analyst estimate of 79 cents a share.

Consumer stocks are defying this year’s drop in the S&P 500 regardless of their ties to the economy, and UBS AG says they will keep beating the market next year.

Makers of food, beverages and other consumer staples (S5CONS) in the S&P 500 gained 7.1 percent as a group through yesterday. Their index was the year’s second-best (SPXL1) performer among the 10 main industry groups in the benchmark, and only trailed utilities. An index of retailers, media companies and other industries that rely on consumers’ discretionary index added 0.3 percent.

“The American consumer is alive and well and consumer companies are likely to post solid results in 2012,” Jonathan Golub, the chief U.S. market strategist at UBS, wrote yesterday in a report.

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