S&P 500 Rises to Highest Level Since 2008

By Rita Nazareth - Feb 24, 2012 10:39 PM GMT+0700

The Standard & Poor’s 500 Index (SPX) rose above its highest close since 2008 as better-than-estimated consumer confidence and home sales reports bolstered confidence in the world’s largest economy.

Energy, utility and technology shares had the biggest gains in the S&P 500 among 10 industries. American International Group Inc. (AIG) surged 4.3 percent as the bailed-out insurer said profit jumped 77 percent. Salesforce.com Inc. (CRM), the largest seller of online customer-management software, climbed 7.3 percent after billings growth topped analysts’ estimates. Kroger Co. (KR), the largest U.S. grocery-store chain, added 1.2 percent after Citigroup Inc. recommended buying the shares.

The S&P 500 increased 0.1 percent to 1,365.41 at 10:37 a.m. New York time, paring a gain of as much as 0.3 percent. The benchmark gauge for American equities exceeded its April 2011 peak of 1,363.61, which was the highest level since June 2008. The Dow Jones Industrial Average fell 2.12 points, or less than 0.1 percent, to 12,982.57 today.

“We continue to see pretty good growth and that’s good for stocks,” James McDonald, chief investment strategist at Northern Trust Corp. in Chicago, said in a phone interview. His firm manages about $665 billion. “The Dow is flirting with 13,000. While it makes no difference from a valuation standpoint, it can cause some people to say: we’ve had a pretty a big run and I’ll take a bit off the table. From a valuation standpoint, the stock market is still pretty attractive.”

Economic Data

Equities gained as data showed that purchases of new homes in the U.S. exceeded forecasts in January after climbing a month earlier to a one-year high. The Thomson Reuters/University of Michigan final index of consumer sentiment for February rose to 75.3 from 75 at the end of last month. Economists projected a reading of 73 after a preliminary figure of 72.5, according to the median estimate in a Bloomberg News survey.

Better-than-estimated economic and earnings reports helped drive the S&P 500 up 4.1 percent in February. The index is poised for a third straight month of gains, the longest streak in a year. Of the 441 S&P 500 companies that reported results since Jan. 9, 298 posted per-share earnings that beat projections, Bloomberg data show. The index is trading for about 14 times reported earnings, compared with the average since 1954 of 16.4 times, according to data compiled by Bloomberg.

“The economy is growing, you’ve got good corporate earnings and reasonably inexpensive stock valuations,” Randy Bateman, chief investment officer of Huntington Asset Management in Columbus, Ohio, said in a telephone interview. His firm oversees $14.5 billion. “What’s not to like?”

AIG, Salesforce

AIG surged 4.3 percent to $29.18. The jump in earnings was fueled by a tax benefit and an increase in the value of a stake in Asian insurer AIA Group Ltd.

Salesforce.com added 7.3 percent to $141.36. The amount Salesforce invoiced its customers grew 57 percent in the fourth quarter from a year earlier, topping the 31 percent predicted by Brent Thill, an analyst at UBS AG in San Francisco. Billings rose 29 percent in the third quarter.

Kroger gained 1.2 percent to $23.25. The company was raised to buy from neutral at Citigroup Inc. The firm also added the shares to its “Top Picks Live” list.

Gap Inc. (GPS) retreated 4 percent to $22.59. The largest U.S. apparel chain forecast profit this year that was less than some analysts estimated as sales decline at its Old Navy stores. Chief Executive Officer Glenn Murphy failed to boost holiday sales at Old Navy after introducing a new marketing campaign for the more-than-1,000-store chain during the third quarter.

Unexpected Loss

Alpha Natural Resources Inc. (ANR) fell 0.7 percent to $19.68. The coal producer that bought Massey Energy Co. for $7.1 billion in June posted an unexpected fourth-quarter loss and cut its 2012 output forecast as U.S. electricity generators switched to cheaper natural gas.

J.C. Penney Co. dropped 0.8 percent to $41.58. The U.S. department-store chain run by Apple Inc.’s former retail chief posted a fourth-quarter loss on charges to revamp the company. Chief Executive Officer Ron Johnson, who took over in November, is overhauling the retailer’s pricing and store design to revive sales and lure shoppers from Macy’s Inc. and Target Corp.

Stocks are in the midst of a “hope phase” that may be as short-lived as one that occurred a year earlier, according to Albert Edwards, a global strategist at Societe Generale SA.

He compares the S&P 500’s performance since October with its year-ago swings. Last year, the index dropped during the second half of February, rebounded to reach its 2011 high in April, and tumbled in a second-half bout of volatility.

Sustained Growth

This year’s gains reflect anticipation of sustained U.S. economic growth and a so-called soft landing for the Chinese economy, according to Edwards, based in London. He also cited optimism that Greece’s second bailout and the European Central Bank’s moves to ease bank financing will help the euro region.

“Hope still beats in the breast of equity investors,” he wrote. “The market will rip out that hope and consume it in front of investors’ eyes.”

Corporate earnings may be a catalyst for the abandonment of hope, the report said. Edwards noted that estimates for S&P 500 companies as a group are dropping for the first time since late 2007, when the U.S. economy was sliding into a recession.

Edwards reiterated in September that the index will fall to 400, a plunge of about 70 percent from yesterday’s close, before the next bull market begins. He saw the yield on 10-year Treasury notes falling to 1.5 percent. Last year’s low was 1.67 percent.

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