U.S. Stock-Index Futures Rise on EU Pact

By Rita Nazareth - Jan 31, 2012 9:14 PM GMT+0700

U.S. stock futures rose, indicating the Standard & Poor’s 500 Index will cap the best January since 1997, as most countries in Europe agreed to tighter budget controls and Greece made progress on debt talks.

Bank of America Corp. and Morgan Stanley increased at least 1.1 percent, following gains in European lenders. Eli Lilly & Co. rallied 2.1 percent as the drugmaker’s profit beat projections. Archer Daniels Midland Co., the world’s largest grain processor, slumped 3.2 percent amid disappointing results.

S&P 500 futures expiring in March added 0.5 percent to 1,315.40 at 9:13 a.m. New York time. Dow Jones Industrial Average futures rose 50 points, or 0.4 percent, to 12,652.

“Most market participants will raise their glasses to usher out what has proved to be a decent January for performance, data and sentiment,” said Jim Reid, a global strategist at Deutsche Bank AG in London.

Global stocks rose today as European Union leaders, meeting in Brussels yesterday, completed a fiscal-discipline treaty that speeds sanctions on high-deficit states. Greek Prime Minister Lucas Papademos said he’s “strongly committed” to reaching a debt-swap pact with bondholders. Residential real estate prices fell more than forecast in November, showing distressed properties are hampering improvement in the U.S. housing market.

Stocks fell yesterday, sending the S&P 500 lower for a third day, as European leaders sparred with Greece over a second rescue program. The decline followed a four-week rally, which was driven by the Federal Reserve’s plans to keep interest rates low through at least late 2014 and better-than-estimated earnings. Of the 184 S&P 500 companies that reported results since Jan. 9, 123 posted per-share earnings that beat projections, Bloomberg data show.

Banks Rally

American banks rallied following gains in European lenders. Bank of America added 1.1 percent to $7.15. Morgan Stanley (MS) increased 1.3 percent to $18.44.

Eli Lilly advanced 2.1 percent to $40.06. Higher sales of its depression and diabetes medicines helped to counter a 44 percent plunge in revenue from the schizophrenia drug Zyprexa.

Archer Daniels Midland slumped 3.2 percent to $28.75. Earnings adjusted for inventory and impairment charges were 51 cents, lower than the 76-cent average of 12 estimates compiled by Bloomberg. Sales rose 11 percent to $23.3 billion from $20.9 billion. “It was a tough quarter,” ADM Chairman and Chief Executive Officer Patricia Woertz said in a statement.

U.S. financial stocks are hardly a bargain as they wrap up their best start to a year since the 1990s, according to Brian Belski, Oppenheimer & Co.’s chief investment strategist.

Don’t Be Fooled

“Longer-term investors should not be fooled by what appear to be attractive valuations for financials,” Belski wrote in a Jan. 27 report. Anyone looking ahead three to five years ought to invest less money in these stocks than their S&P 500 weight would suggest, he added. They account for about 14 percent of the index’s value.

The financial index was valued at 12.4 times earnings yesterday. The ratio was about twice as high two years ago, according to data compiled by Bloomberg.

“Most of these companies operate in a ‘whole new world’ of increased scrutiny and regulation,” wrote Belski, based in New York. He added that more restrictive capital requirements, imposed as part of that shift, will hurt profitability.

This month’s gains in the shares resulted largely from buying to capitalize on a rising stock market, he wrote. S&P’s industry indicator swung by an average of 1.4 percent for every 1 percent move in the S&P 500 during the past 12 months, based on Bloomberg’s data. This reading, known as beta, was higher for financials than for any of the index’s nine other main industry groups.

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