U.S. Stocks Fluctuate as Europe Concern Offsets Earnings
Dec. 17 (Bloomberg) -- Robert Hagstrom, manager of growth equities at Legg Mason Funds Management Inc., talks about the performance of the Standard & Poor's 500 Index and the outlook for the market. Hagstrom, speaking with Tom Keene on Bloomberg Television's "Surveillance Midday," also discusses his position in Wells Fargo & Co. and Cisco Systems Inc. (Source: Bloomberg)
Most U.S. stocks rose, sending the Standard & Poor’s 500 Index to a two-year high, as better-than- projected earnings forecasts at Oracle Corp. and Research In Motion Ltd. and the takeover of a regional bank overshadowed concern Europe’s debt crisis will spread.
Oracle jumped to the highest price since 2001. Marshall & Ilsley Corp. surged 18 percent as Bank of Montreal agreed to buy the lender. Freeport-McMoRan Copper & Gold Inc. paced gains in commodity producers as metal prices rose. Drugmakers slipped, with Merck & Co. dragging on the Dow Jones Industrial Average, after AstraZeneca Plc failed to win U.S. approval for a new blood thinner.
About 11 stocks gained for every 10 that fell on U.S. exchanges. The S&P 500 rose 0.2 percent to 1,245.33 at 1:58 p.m. in New York, above its highest close since September 2008. The Dow slipped 1.48 points, or less than 0.1 percent, to 11,497.77. The VIX, as the Chicago Board Options Exchange Volatility Index is known, sank 10 percent to 15.58, its lowest since April.
“Europe is still a concern,” said Frank Ingarra, a Stamford, Connecticut-based money manager at Hennessy Advisors Inc., which oversees about $900 million. “Corporate earnings have been good. Companies are sitting on a record amount of cash,” he said. “However, the stock market had a pretty big run up. Any near term-noise would lead to consolidation and support the case for a long-term rally.”
Valuation Watch
The S&P 500 yesterday rose to its highest level since the aftermath of Lehman Brothers Holdings Inc.’s collapse in September 2008 as first-time claims for unemployment benefits unexpectedly declined and builders began work on more homes in November. Its recent rally has pushed its valuation to more than 15.5 times reported profits, the highest since June.
Oracle, the second-largest software maker, jumped 5.4 percent to $31.91. The company reported second-quarter earnings that topped analysts’ estimates, helped by database sales and the expansion into computer hardware. Oracle was raised to “outperform” from “market perform” at Oppenheimer & Co.
Research In Motion Ltd. rallied 2.6 percent to $60.77. The maker of the BlackBerry forecast fourth-quarter earnings of at least $1.74 a share, higher than the average analyst forecast.
The S&P 500 Regional Banks Index of 11 companies rallied 1.9 percent. Bank of Montreal will pay 0.1257 of its own share for each share of Marshall & Ilsley, the Toronto-based bank said today in a statement. The deal values Marshall & Ilsley at $7.75 a share, 34 percent higher than yesterday’s closing price of $5.79 on the New York Stock Exchange.
Marshall & Ilsley soared 18 percent to $6.83, its biggest gain since May 2009. Regions Financial Corp. advanced 4.3 percent to $6.39. KeyCorp gained 3.9 percent to $8.41.
‘Betting Heavily’
U.S. options traders are making the most bullish wagers on banks in more than a year, speculating financial companies will rally as the economy improves and analysts predict 21 percent profit growth next year.
“People in the options market are betting heavily that these stocks will go up,” said Chris Rich, head options strategist at JonesTrading Institutional Services LLC in Chicago. “I’m seeing a lot of smart-money guys buying out-of- the-money calls in banks. When I see everyone marching in the same direction at the same time, that’s something I take note of. It’s a strong signal.”
InterMune Inc. surged 133 percent to $33.30. The company’s Esbriet drug, a treatment for mild to moderate idiopathic pulmonary fibrosis, a fatal lung disease, was recommended for approval by a European regulatory committee.
Europe Crisis
Stocks fell in Europe today even as the European Central Bank and Bank of England set up a temporary swap line to help ease liquidity strains at Ireland’s lenders in case the sovereign-debt crisis intensifies. The Bank of England could provide up to 10 billion pounds ($15.5 billion) to the ECB in exchange for euros if needed, the Frankfurt-based central bank said in a statement today. The facility will allow funds to be made available to Ireland’s central bank.
Irish banks’ senior bonds plunged after Moody’s Investors Service cut the nation’s credit rating by five levels, citing its declining financial strength and the cost of bailing out lenders. Separately, the International Monetary Fund cut its forecast for Ireland’s economic growth. The Washington-based fund said it expects Ireland’s economy to grow 0.9 percent in 2011, down from 2.3 percent estimated by the fund in October.
‘Back And Forth’
“You see this constant back and forth in Europe,” said John Praveen, the Newark, New Jersey-based chief investment strategist at Prudential International Investments Advisers LLC, which oversees $690 billion. “There’s still concern about credit downgrades even as European policy makers try to provide some relief. Other than that, everything else seems to be working out fine.”
The index of U.S. leading economic indicators increased in November by the most in eight months, a signal the recovery will strengthen early next year. The Conference Board’s gauge of the outlook for the next three to six months rose 1.1 percent after a revised 0.4 percent gain in October. The reading matched the median forecast of economists surveyed by Bloomberg News.
Merck, the second-largest U.S. drugmaker, dropped 1.6 percent to $36.24. Pfizer Inc., the world’s biggest drugmaker, slumped 0.8 percent to $17.08.
AstraZeneca fell the most in more than two years in London trading after the U.K. drugmaker failed to win U.S. approval for a new blood thinner to rival Plavix, the world’s second-best selling drug. The Food and Drug Administration asked for additional analysis of a study called Plato comparing Brilinta with Plavix in patients with severe chest pain or earlier heart attacks, AstraZeneca said yesterday.
Solar stocks declined after DigiTimes said Germany is in talks to cut incentives for photovoltaic solar systems by 16 percent on July 1. First Solar slid 1.5 percent $133.61. JA Solar Holdings Co. fell 1.5 percent to $6.79.
Discover Financial Services sank 2.3 percent to $18.11. The fourth-biggest U.S. payments network had its fiscal 2011 earnings estimate cut to $1.72 a share from $1.79 by RBC Capital Markets, which cited a “more sizable” release in loan-loss reserves during the fourth quarter of fiscal 2010.
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