Dow Average Rallies to Highest Level Since May

By Rita Nazareth - Jan 26, 2012 4:57 AM GMT+0700

U.S. stocks rose, sending the Dow Jones Industrial Average to the highest level since May, as the Federal Reserve signaled low rates through at least late 2014 and didn’t rule out bond purchases to bolster the economy.

A measure of commodity shares in the Standard & Poor’s 500 Index added 1.6 percent after gold rallied as record-low rates may boost its appeal as a hedge against inflation. Banks had the biggest drop in the S&P 500 among 24 groups as the industry may face pressure on margins from the Fed’s policy on rates. Apple (AAPL) Inc. climbed 6.2 percent to an all-time high as profit more than doubled. Textron Inc. (TXT), the maker of Cessna planes, surged 15 percent after forecasting higher-than-estimated earnings.

The S&P 500 added 0.9 percent to 1,326.06 at 4 p.m. New York time, after dropping 0.5 percent earlier. The Dow gained 83.10 points, or 0.7 percent, to 12,758.85. The Nasdaq-100 Index rose 1.3 percent to 2,465.66, the highest since 2001.

“The Fed is saying that money will stay easy and the cost of money will stay low,” Madelynn Matlock, who helps oversee about $14.5 billion at Huntington Asset Advisors in Cincinnati, said in a telephone interview. “The ability for businesses to find the money they need to grow and for consumers to find the money they need to buy things is going to be easier. That makes the growth path a little simpler.”

Benchmark gauges reversed losses as the Fed extended its previous pledge to keep rates low at least until the middle of 2013 as more than two years of economic growth have failed to push unemployment below 8.5 percent. Fed Chairman Ben S. Bernanke said central bankers are still debating additional asset purchases.

Earnings Season

Investors also watched earnings reports. Of the 112 S&P 500 companies that reported results since Jan. 9, 74 posted per- share earnings that beat projections, according to data compiled by Bloomberg. Earnings probably grew 3.4 percent for S&P 500 companies in the fourth quarter, the data show. The projection has fallen from 6.2 percent at the end of last year.

The Morgan Stanley Cyclical Index of companies most- dependent on economic growth added 1 percent. The Dow Jones Transportation Average advanced 1.5 percent. All 10 groups in the S&P 500 gained.

Gold producers rallied as the metal climbed to a six-week high. Newmont Mining Corp. (NEM), the largest U.S. gold producer, jumped 4.8 percent to $60.25. Freeport-McMoRan Copper & Gold Inc. (FCX), the world’s largest publicly traded copper producer, climbed 4.8 percent to $46.08.

Apple Rallies

Apple rallied 6.2 percent, the most since May 2010, to $446.66. The company sold 37 million iPhones in the period ended Dec. 31, with customers snapping up the new 4S model that went on sale in October, a week after the death of co-founder Steve Jobs. Record revenue vaulted Apple ahead of Hewlett-Packard Co. (HPQ) as the world’s biggest computer maker by sales and quelled concern that the company’s allure may dim as it embarks on a new era with Chief Executive Officer Tim Cook at the helm.

Textron surged 15 percent, the most in the S&P 500, to $24.76. Chief Executive Officer Scott Donnelly is working to leverage the company’s businesses with measures such as having Cessna and Bell share overseas service centers and sales forces. Textron is winding down its finance unit, which struggled during the recession.

The Bloomberg U.S. Airlines Index (BUSAIRL) of 11 companies jumped 4.5 percent. Delta Air Lines Inc. (DAL) and US Airways Group Inc. (LCC) reported fourth-quarter profits that topped analysts’ projections. Delta Air climbed 6.2 percent to $9.96. US Airways rallied 17 percent to $7.52.

M&A Deal

Illumina Inc. (ILMN) surged 46 percent to $55.15. Roche Holding AG offered $5.7 billion in a hostile bid for Illumina to bolster sales of gene-mapping equipment and services. Roche proposed paying $44.50 a share, 18 percent more than yesterday’s close.

Walter Energy Inc. (WLT) gained 3.9 percent to $70.14. The company may finally lure buyers willing to bet on a recovery in coal prices with the industry’s cheapest stock. After losing almost half its value in the past year, the producer of steelmaking coal sold for 9.3 times earnings this week, according to data compiled by Bloomberg. That was less than any North American coal-mining company with $1 billion in market capitalization.

Walter Energy, which bought Western Coal Corp. for $5.3 billion in April, is an attractive target because it produces high-grade steelmaking coal, Brean Murray Carret & Co. said. A buyer could spend double Walter Energy’s closing price of $67.54 a share yesterday and still get the company for less relative to earnings than any coal takeover in the past year, data compiled by Bloomberg show.

Banks (S5BANKX) Decline

Banks had the biggest decline in the S&P 500 among 24 industries, falling 0.3 percent. Bank of America Corp. and Citigroup Inc. (C) are among lenders that may find it harder to boost profits and capital after the Fed’s pledge on low rates. Bank of America rose 0.8 percent to $7.35. Citigroup added 0.2 percent to $29.96.

“This is a very dovish Fed,” David Kelly, who helps oversee $394 billion as chief market strategist for JPMorgan Funds in New York, said in a telephone interview. “It’s an attempt to push down long-term interest rates. They are pushing the rates down to a level where consumers should find them very attractive, but banks will find them very unattractive.”

Corning Inc. (GLW) tumbled 11 percent, the biggest decline in the S&P 500, to $13.05. The largest maker of glass for flat-panel televisions said glass prices contributed to a 53 percent drop in fourth-quarter profit and are still sinking.

Xerox, WellPoint

Xerox Corp. (XRX) slumped 9.9 percent to $7.81. The provider of printers and business services gave earnings forecasts that trailed some analysts’ estimates as Europe weakens.

WellPoint Inc. (WLP) decreased 4.8 percent to $66.10. The largest U.S. health insurer by enrollment forecast 2012 earnings and reported fourth-quarter profit that were less than analyst estimates on higher medical costs.

“It’s going to be a mediocre earnings season,” Russ Koesterich, the San Francisco-based global chief investment strategist for the IShares unit of BlackRock Inc., said in a phone interview. His firm oversees $3.5 trillion as the world’s largest asset manager. “We’re not going to see robust growth this year and this is being reflected in corporate outlooks.”

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

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