U.S. Stocks Advance as Confidence, Home Sales Beat Forecasts

Wednesday, November 25, 2009

Aug. 25 (Bloomberg) -- U.S. stocks rose as better- than- estimated consumer confidence and home prices bolstered optimism the recession is ending, while falling oil prices dragged down energy producers. Treasury yields declined after a record-tying $42 billion sale of two-year notes.
Macy’s Inc. and Bed Bath & Beyond Inc. added more than 3.5 percent as the Conference Board’s measure of consumer sentiment increased to 54.1, topping the median projection of 47.9. Pulte Homes Inc., the nation’s biggest builder by market value, rose 3.7 percent as the S&P/Case-Shiller home-price index for 20 U.S. cities dropped by the smallest amount since April 2008. Energy companies fell as crude lost 3.7 percent from a 10-month high.
The Standard & Poor’s 500 Index added 0.4 percent 1,029.73 at 3:01 p.m. after rallying as much as 1.2 percent. The Dow Jones Industrial Average advanced 48.30 points, or 0.5 percent, to 9,557.58, gaining for the sixth straight day. Both measures reached their highest levels of 2009.
“Obviously there’s a lot of questions about whether the economic recovery is sustainable, but stocks tend to react before the fundamentals do,” said Jeffrey Coons, who helps oversee $21 billion as co-director of research at Manning & Napier Advisors Inc. in Fairport, New York. “We haven’t yet begun to see investors shift more assets into equities, so we think stocks have more room to appreciate.”
The S&P 500 has advanced five straight months and in five of the past six weeks following better-than-forecast corporate profits and signs of an improving economy. More than 72 percent of its companies beat the average analyst estimate for second- quarter earnings, the most since Bloomberg began tracking the data in 1993. The Conference Board’s index of leading economic indicators has risen every month since April. With today’s gain, the S&P 500 has risen 53 percent from a 12-year low in March.
Europe, Asia Shares
The Dow Jones Stoxx 600 Index of European shares advanced 0.4 percent after earlier falling as much as 0.8 percent. The MSCI Asia Pacific Index slipped 0.3 percent as the Shanghai Composite Index slid for the first time in four days, decreasing 2.6 percent. Wen Jiabao, China’s premier, said yesterday that excess industrial capacity may limit growth and authorities can’t be “blindly” optimistic.
Treasury yields, which move inversely to the price of the securities, declined after the auction. The new two-year notes were sold at a yield of 1.119 percent, higher than the 1.115 percent average estimate of eight bond-trading firms surveyed by Bloomberg News.
Today’s auction will be followed by $39 billion of five- year notes tomorrow and $28 billion of seven-year notes on Aug. 27. The U.S. government is selling the securities to fund the record budget deficit that resulted from measures to prop up the economy. The deficit will widen to $1.5 trillion next year, reflecting a “deeper recession” than previously expected, White House budget chief Peter Orszag said today.
Teen Clothing
Macy’s, the second-biggest U.S. department-store chain, rose 4.2 percent to $15.96. Bed Bath & Beyond, the largest U.S. home-furnishings retailer, climbed 3.9 percent to $36.60. The S&P 500 Consumer Discretionary Index advanced 1.2 percent, the most among 10 industries, following the consumer-confidence report.
Pulte Homes, the biggest U.S. homebuilder, advanced 3.6 percent to $13.07. The four homebuilders in the S&P 500 gained 3.2 percent as a group, and reached the highest level since Oct. 2. The S&P/Case-Shiller home-price index declined 15.4 percent in June from a year earlier, less than the median economist estimate of 16.4 percent. Prices rose from the prior month by the most in four years.
Energy companies in the S&P 500 retreated 1.6 percent, the biggest drop among the 10 industries.
Big Lots Inc. rose 5.7 percent to $25.41. The closeout retailer said second-quarter profit from continuing operations was 35 cents a share, or 15 percent more than the average analyst estimate.
Burger King Holdings Inc. increased 7.6 percent to $19. The second-largest U.S. hamburger chain said fourth-quarter profit was 43 cents a share, topping the average estimate by 32 percent, as the company expanded overseas.
Harman International Industries Inc. rose the most in the S&P 500, climbing 9.7 percent to $29.72. The maker of audio systems for homes and vehicles was rated “overweight” in new coverage at JPMorgan Chase & Co., which said the company has the potential to cut costs and boost sales.
Most U.S. stocks fell yesterday, led by financial companies, after SunTrust Banks Inc. said lenders face more credit losses and commercial real estate may falter through 2010. The S&P 500’s five-month rebound left it the valued at 18.9 times the trailing 12-month operating profits of its companies last week, the highest ratio since 2004, according to data compiled by Bloomberg.
Ouster From S&P 500
Manitowoc Co. fell 4.9 percent to $6.51. The crane maker was picked to replace CareFusion Corp., which is being spun off from Cardinal Health Inc., in the S&P 500.
Denbury Resources Inc. fell 7 percent to $15.70 for the biggest drop in the S&P 500. The oil and natural-gas producer was cut to “neutral” from “buy” at UBS AG.
U.S. companies with the worst finances are beating the S&P 500 even as their funding deteriorates, a sign their rally may falter should the economic recovery stall, Armstrong Investment Managers said.
The weakest non-financial companies in the S&P 500 surged 90 percent since March 9 through last week. After the S&P 500 sank to a 12-year low five months ago, those with the best finances gained 49 percent, data from Armstrong Investment show. The companies were identified using New York University Professor Edward Altman’s Z-Score method.


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