S&P 500 Nears Three-Year High on Optimism

By Rita Nazareth - Feb 18, 2012 4:33 AM GMT+0700

U.S. stocks advanced, sending the Standard & Poor’s 500 Index near the highest level in about three years, amid optimism Greece will get a bailout.

Banks had the biggest gain in the S&P 500 among 24 groups, rallying 1.7 percent. H.J. Heinz Co. (HJN), the biggest ketchup maker, and Campbell Soup (CPB) Co., the largest soup maker, climbed at least 2.6 percent as earnings beat projections. Gilead Sciences Inc. (GILD) tumbled 14 percent as some patients relapsed on its hepatitis C drug. General Mills Inc., the maker of Cheerios cereal, retreated 3.6 percent after cutting its profit forecast.

The S&P 500 rose 0.2 percent to 1,361.23 at 4 p.m. New York time. The index is 0.2 percent below its April peak of 1,363.61, the highest level since June 2008. The Dow Jones Industrial Average added 45.79 points, or 0.4 percent, to 12,949.87.

“Greece is the word,” Philip Orlando, the New York-based chief equity strategist at Federated Investors Inc., which oversees about $370 billion, said in a phone interview. “We’re just reacting to what the euro zone is telling us in terms of the state of negotiations. Do I believe that the euro zone will give Greece more money? Yes. Otherwise, Greece defaults.”

Equities rose as euro-area governments closed in on a deal to unlock a 130 billion-euro ($171 billion) aid package for Greece, seeking to avert the region’s first sovereign default. Germany signaled that finance ministers may be ready to back Greece’s second bailout in two years when they meet Feb. 20.

“The bar has been raised,” Eric Thorne, who helps oversee about $6 billion at Bryn Mawr Trust Co. in Bryn Mawr, Pennsylvania, said in a phone interview. “If things don’t go quite smoothly as expected, then the market would experience a fairly steep selloff.”

Economic Optimism

Today’s gain extended this year’s rally in the S&P 500 to 8.2 percent. Stocks climbed as Europe stepped up efforts to tame its debt crisis and after reports on U.S. manufacturing, housing and jobs bolstered optimism in the world’s largest economy.

Seven out of 10 groups in the S&P 500 rose today as consumer discretionary and financial shares had the biggest gains. The KBW Bank Index (BKX) of 24 stocks added 1 percent. JPMorgan Chase & Co. (JPM) advanced 1.2 percent to $38.47. Bank of America Corp. (BAC) lost 0.9 percent to $8.02. Intel Corp. (INTC) had the biggest advance in the Dow, rallying 2 percent to $27.37. It’s the highest level since 2007.

Should the S&P 500 rally above its closing peak in April, the gauge would extend its gains, according to Ryan Detrick at Schaeffer’s Investment Research. He said the next target for the S&P 500 would be 1,440, the intraday peak in May 2008.

‘Good Sign’

“It would be a good sign that confidence is coming back,” Detrick, senior technical strategist at Schaeffer’s, said in a telephone interview from Cincinnati. “People are realizing that things are on much better footing and that should lead to higher equity prices.”

H.J. Heinz (HNZ) gained 4.6 percent to $54.47. The company reported third-quarter earnings excluding some items of 95 cents a share, beating the average analyst estimate of 85 cents.

Campbell Soup added 2.6 percent to $32.90. The company reported second-quarter earnings excluding some items of 64 cents a share. On average, the analysts surveyed by Bloomberg estimated profit of 62 cents.

First Solar Inc. (FSLR) surged 7.3 percent to $42.59. The biggest maker of thin-film solar panels resolved a permitting issue with Los Angeles County for a $1.36 billion power project under construction, paving the way for financing to resume.

Chesapeake Energy Corp. (CHK) jumped 4 percent to $24.71 after being raised to “buy” from “hold” at Stifel Nicolaus & Co. The 12-month share-price estimate is $29.

Gilead Tumbles

Gilead tumbled 14 percent to $47. Among eight patients with hepatitis C genotype 1 in a clinical trial, six had a viral relapse within four weeks after stopping a 12-week treatment with the medicine, GS-7977, plus ribavirin, Gilead said today in a statement. The two other patients are two weeks out from stopping treatment, and haven’t relapsed, the company said.

General Mills (GIS) dropped 3.6 percent to $38.34. The company said “weak volume performance” across U.S. retail food categories in December and January hurt results in its fiscal third quarter.

The companies investors hated the most in 2011 have returned twice as much as the S&P 500 this year, burning speculators who bet stocks from Sears Holdings Corp. (SHLD) to Netflix Inc. would keep falling.

The 26 companies in the S&P 500 with the highest so-called short interest relative to shares available for trading rallied 18 percent this year, compared with 8 percent for the full index, data compiled by Bloomberg show. Speculators who borrowed Sears shares and sold them to profit from a drop got hammered as the stock surged 73 percent. Netflix, with short interest of 17 percent at the end of 2011, rose 76 percent.

Biggest Gains

Banks (S5BANKX), commodity and industrial companies, the only groups to post losses last year, are leading stocks higher on signs the U.S. economy is gaining momentum. That’s forcing speculators to cut bearish wagers after pushing them to the highest levels since the market bottomed in 2009, according to a survey by International Strategy & Investment Group.

“It’s been a rotation back into fundamentally sound, economically sensitive companies that had been unduly punished in the second half of last year,” David Spika, who helps oversee $13 billion as an investment strategist at Westwood Holdings Group Inc. in Dallas, said in a telephone interview. “When the market turns, those shorts have to be covered and that creates momentum.”

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