By Ksenia Galouchko and Nikolaj Gammeltoft - Jan 4, 2012 4:59 AM GMT+0700
Jan. 4 (Bloomberg) -- Nick Sargen, chief investment officer at Fort Washington Investment Advisors in Cincinnati, talks about the European debt crisis and its implications for U.S. financial markets, the Federal Reserve's drive for greater transparency and his investment strategy. Sargen speaks with Zeb Eckert on Bloomberg Television's "First Up." (Source: Bloomberg)
Traders work at the New York Stock Exchange. Photographer: Scott Eells/Bloomberg
U.S. stocks climbed, sending the Dow Jones Industrial Average to the highest level since July, amid signs that manufacturing output is increasing from China to Australia and America.
Bank of America Corp. (BAC) and JPMorgan Chase & Co. (JPM) added more than 4.3 percent as financial shares had the second-biggest gain among S&P 500 industries. Alcoa Inc. (AA) and Caterpillar Inc. (CAT) advanced at least 3.7 percent, pacing increases among the largest U.S. companies. Chevron Corp. (CVX) climbed 3.7 percent as the price of oil rose. Cisco Systems Inc. surged 3.4 percent after JPMorgan recommended investors buy the shares.
The Standard & Poor’s 500 Index rallied 1.6 percent to close at 1,277.06 at 4 p.m. New York time, the highest level since Oct. 28. The Dow jumped 179.82 points, or 1.5 percent, to 12,397.38, adding to its 5.5 percent advance in 2011.
“The U.S. market has been cheering because of the fact the U.S. economy has been performing better,” Kevin Shacknofsky, who helps manage about $5 billion for Alpine Mutual Funds in New York, said in a telephone interview. “In line with everything else today, the manufacturing data is better than expected.”
The S&P 500 rallied (SPX) 14 percent from last year’s lowest level on Oct. 3 through Dec. 30 as better-than-estimated economic data fueled optimism the world’s largest economy can shrug off concern over Europe’s sovereign-debt crisis. The S&P 500 had the 10th best performance among the world’s stock markets in 2011. The gauge still recorded its first annual decline since 2008, posting a loss of 4/100ths of a point.
Manufacturing Grows
Manufacturing across the globe showed improvement in December, suggesting production is weathering strains from Europe’s debt crisis. In the U.S., a report today showed factory output grew at the fastest pace in six months. Australian manufacturing expanded for the first time in six months, while similar Chinese and German (PMITMGE) data beat economist estimates in the past two days.
Another report showed construction spending in the U.S. rose in November for a third time in four months. Housing shares surged today, with an S&P index (S15HOME) of homebuilders gaining 2.3 percent. PulteGroup Inc. jumped 3.3 percent to $6.52, while D.R. Horton Inc. climbed 2.9 percent to $12.98.
“You’re starting to see people want to take more risks,” Frank Ingarra, who helps manage the Can Slim Select Growth Fund at Greenwich, Connecticut-based NorthCoast Asset Management LLC, said in a telephone interview. His firm oversees $1.4 billion. “Nobody was really around the last week or two, and now they’re getting positioned to start the year off with a positive step.”
Financials, Industrials
Commodity producers, financial companies and energy stocks rose the most among 10 groups in the S&P 500, advancing at least 2.6 percent. The Morgan Stanley Cyclical (CYC) Index added 3.1 percent amid optimism about economic growth.
The KBW Bank Index rose 3.3 percent to the highest level since Nov. 8. Bank of America climbed 4.3 percent to $5.80. JPMorgan increased 5.2 percent to $34.98. Citigroup Inc. (C) jumped 7.7 percent to $28.33.
ConocoPhillips (COP) rose 1.8 percent to $74.17, while Chevron added 3.7 percent to $110.37 after the price of oil climbed 4.2 percent to $102.96 a barrel, the highest level in more than seven months.
Coal producers advanced after a federal court ruled that the Environmental Protection Agency must delay implementing air- pollution regulations. Peabody Energy Corp. (BTU) increased 9.5 percent to $36.27, for the second-biggest gain in the S&P 500. Alpha Natural Resources Inc. (ANR) advanced 8 percent to $22.07.
Industrial metal producers surged as copper, aluminum, zinc and tin rose on speculation stronger gauges of manufacturing may signal increased demand for industrial metals.
Alcoa, U.S. Steel
Alcoa gained 6.7 percent, the most in the Dow, to $9.23. U.S. Steel Corp. climbed 6.5 percent to $28.17. Freeport-McMoRan Copper & Gold Inc. (FCX) rose 7.4 percent to $39.50.
Caterpillar, the world’s largest construction and mining- equipment maker, gained 3.7 percent to $93.98.
Boeing Co. (BA) advanced 1.2 percent to $74.22. The planemaker beat Lockheed Martin Corp. to keep a $3.48 billion, seven-year contract for the primary U.S. shield against intercontinental ballistic missiles. Lockheed climbed 1.4 percent to $82.02 after the world’s largest defense contractor received a $1.96 billion contract from the Pentagon to supply the United Arab Emirates with a missile defense system.
Cisco (CSCO) jumped 3.4 percent to $18.63. The world’s biggest maker of networking equipment was raised to “overweight” from “neutral” at JPMorgan.
Mead Johnson Nutrition Co. (MJN) increased 3.8 percent to $71.35. U.S. regulators said they haven’t found evidence of any connections between the company’s baby formula and illnesses in four infants, which led some stores to pull the formula from shelves.
Tenet Healthcare Corp. (THC) retreated 3.3 percent to $4.96 after Citigroup cut the Dallas-based hospital operator to “sell” from “neutral,” saying the company is “poorly positioned” and faces “much competition.”
The Fed Minutes
Stocks maintained gains after the Federal Reserve said it will for the first time make public their own forecasts for the federal funds rate at their Jan. 24-25 meeting, according to minutes from last month’s Federal Open Market Committee released today.
The move marks another stride toward greater transparency under the chairmanship of Ben S. Bernanke. By releasing their forecasts, central bankers are likely to alter expectations for the timing of the first increase in their benchmark rate, which has been kept near zero since December 2008.
Forecasters at securities firms are more conservative on U.S. stocks than any time in seven years, predicting the S&P 500 will rise 6.4 percent in 2012 as budget deficits around the world limit gains.
Strategists’ Forecast
The benchmark gauge will climb to 1,338 after it was virtually unchanged in 2011 and the U.S. beat every equity market in the developed world except Ireland, according to the average forecast of 13 strategists tracked by Bloomberg. That’s the smallest predicted return since 2005. Adam Parker of Morgan Stanley, whose estimate for 2011 proved the most accurate among current analysts, forecast a loss of 7.2 percent as Europe’s debt crisis will keep volatility above historical levels.
Blackstone Group LP’s Byron Wien, whose prediction for the U.S. economy and stock market in 2011 proved too optimistic, said oil will slip to $85 a barrel this year and the S&P 500 will exceed 1,400.
U.S. economic growth will top 3 percent while the nation’s unemployment rate will drop below 8 percent, Wien, chairman of Blackstone’s advisory services unit, said in his annual “10 Surprises” list published since 1986. His forecast for crude oil implies a 14 percent slump from last year’s closing level, while the S&P 500 forecast would require an 11 percent gain.
“The drop in the price of oil and the rise in the stock market improve both consumer confidence and spending patterns,” Wien wrote in an e-mailed statement today. “Recession fears and even ‘the new normal’ view of prolonged slow growth are called into question.”
To contact the reporters on this story: Ksenia Galouchko in New York at kgalouchko1@bloomberg.net; Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net
To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net
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