By Rita Nazareth - Jan 19, 2012 4:36 AM GMT+0700
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Specialist Ned Zelles, second left, works at his post on the floor of the New York Stock Exchange on Jan. 18, 2012. Photographer: Richard Drew/AP
Jan. 19 (Bloomberg) -- Scott Wren, senior equity strategist at Wells Fargo Advisors LLC, talks about the outlook for U.S. and emerging stock markets, and his investment strategy. Wren speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)
U.S. stocks rose, giving the Standard & Poor’s 500 Index its best start to a year since 1987, after confidence among homebuilders topped forecasts, Goldman Sachs (GS) Group Inc. rallied and concern about Europe eased.
Goldman Sachs climbed 6.8 percent as earnings beat estimates amid lower compensation costs. Bank of America Corp. (BAC) and JPMorgan (JPM) Chase & Co. jumped at least 4.6 percent, leading the gains in the Dow Jones Industrial Average. PulteGroup Inc. (PHM) and Lennar Corp. added more than 4.3 percent, pacing an advance in homebuilders. A measure of chipmakers rose the most in the S&P 500 among 24 industries, rallying 3.9 percent.
The S&P 500 increased 1.1 percent to 1,308.04 at 4 p.m. New York time, closing above 1,300 for the first time since July. The Dow advanced 96.88 points, or 0.8 percent, to 12,578.95. The Nasdaq Composite Index climbed 1.5 percent to 2,769.71. The Russell 2000 Index jumped 1.8 percent to 779.26.
“It’s great to see the market up,” John Carey, a Boston- based money manager at Pioneer Investments, said in a telephone interview. The firm oversees about $220 billion. “People are realizing that Europe is important, but it’s not the whole world. They are looking at the economic numbers in the U.S. and seeing that we’re not going back into a recession. The economy is still growing. We might be all right at the end of the day.”
The S&P 500 has risen 4 percent this year as measures of commodity, financial and industrial shares rallied at least 6.4 percent. The Morgan Stanley Cyclical Index of companies most- tied to the economy has surged 11 percent in 2012, with Alcoa Inc. (AA) and Caterpillar Inc. (CAT) soaring at least 15 percent.
Highest Since 2007
Stocks climbed today as confidence among U.S. homebuilders rose in January to the highest level since 2007. Equities extended gains as an official told reporters that Greece’s government could forge an agreement with private creditors by the end of this week after talks resumed in Athens today. The International Monetary Fund is proposing to raise its lending capacity by as much as $500 billion to safeguard the economy.
“Investors need a new excuse to commit more capital,” Michael Shaoul, chairman of Marketfield Asset Management in New York, which oversees $1.3 billion, said in a telephone interview. “The acute stress of Europe has moderated. Given that we already have good economic data, the most obvious new excuse is earnings. I would expect a decent earnings season.”
Companies in the benchmark index, which beat profit estimates in the previous 11 quarters, probably will report a 4.6 percent increase in per-share earnings during the September- December period, analysts’ estimates compiled by Bloomberg show.
Homebuilders Rally
Nine out of 10 industries in the S&P 500 rallied as financial and technology gauges advanced at least 1.6 percent. A gauge of homebuilders in S&P indexes climbed 4.6 percent. PulteGroup added 5.9 percent to $7.94. Lennar (LEN) jumped 4.4 percent to $23.
Goldman Sachs rose 6.8 percent to $104.31. Chief Executive Officer Lloyd C. Blankfein cut compensation 21 percent in 2011 as he reduced costs and focused on international growth to offset a slowdown in trading, which contributes most of the firm’s revenue. Goldman Sachs’s higher-than-estimated earnings contrasted with previous reports from Citigroup Inc. (C), which fell short of analysts’ estimates, and JPMorgan, which matched projections.
Some of the largest financial companies also climbed. Bank of America advanced 4.9 percent to $6.80. JPMorgan added 4.7 percent to $36.54.
Bank of New York Mellon Corp. (BK) fell 4.6 percent to $20.30. The world’s biggest custody bank said fourth-quarter earnings declined 26 percent on a restructuring charge and lower revenue from businesses tied to financial markets.
Sales Forecast
The Philadelphia Semiconductor Index surged 5 percent as all of its 30 stocks advanced. Linear Technology Corp. (LLTC) jumped 12 percent, the most in the S&P 500, to $33.32. The maker of semiconductors for industrial equipment and cars forecast fiscal third-quarter sales that would beat analysts’ estimates.
Yahoo! Inc. (YHOO) gained 3.2 percent to $15.92 as Jerry Yang’s exit may remove a barrier to find a buyer or negotiate a sale of stakes in Asian assets valued at more than $10 billion. Now that the co-founder and one-time chief executive officer has cut his leadership ties to Yahoo, newly appointed CEO Scott Thompson has freer rein to unwind the company’s part-ownership of Alibaba Group Holding Ltd. and Yahoo Japan Corp.
U.S. companies that beat analysts’ earnings estimates are an exception, rather than the rule, for the fourth-quarter reporting season getting under way. Only 47.1 percent of companies in the S&P 500 that posted quarterly results between Dec. 1 and yesterday exceeded the average projection, according to data compiled by Bloomberg.
Financial Crisis
So-called positive surprises have surpassed 50 percent at a comparable point in every other quarterly reporting period for the past four years. The previous low was 51.5 percent in the third quarter of 2008, when a global financial crisis was taking hold.
“Early reporters’ results” are one of two reasons to expect the current earnings season to be disappointing, Thomas M. Doerflinger, a strategist at UBS AG, wrote yesterday in a report. The other is that many companies are likely to cut estimates for this year.
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
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