March 26 (Bloomberg) -- U.S. stocks rallied, extending the market’s best monthly gain since 1974, on better-than-estimated earnings at Best Buy Co. and ConAgra Foods Inc. and prospects for lower labor costs at General Motors Corp. Treasury one-month bill rates turned negative for the first time since December.
Best Buy, the largest U.S. electronics chain, jumped 13 percent and ConAgra, maker of Banquet frozen dinners and Slim Jim meat snacks, rose 9.2 percent. GM climbed 14 percent after saying 7,500 union members signed up for buyouts. Research In Motion Ltd. gained 4.9 percent after Goldman Sachs Group Inc. recommended buying shares of the maker of BlackBerry phones.
The Standard & Poor’s 500 Index added 2.3 percent to 832.86, up 13 percent in March. The Dow Jones Industrial Average added 174.75 points, or 2.3 percent, to a six-week high of 7,924.56. The Nasdaq Composite rallied 3.8 percent, erasing its loss for the year. Stocks extended gains as an auction of seven- year Treasuries eased concern that demand for government debt is dwindling.
“I wouldn’t be surprised to see this rally take the S&P up to 1,000,” said Tom Wirth, senior investment officer at Chemung Canal Trust Co., which manages $1.5 billion in Elmira, New York. “It’s been one data point after another that’s come in better than expected.”
Stocks added to an advance yesterday triggered by government data showing unexpected growth in durable-good orders and new-home sales. Those reports tempered reaction to Commerce Department data today that said the economy shrank last quarter at a 6.3 percent annual pace, more than previously estimated while less than the average forecast in a Bloomberg survey.
Gains Extended
Stocks climbed to their highs of the day and Treasuries rose after the government’s $24 billion sale of seven-year notes drew a yield of 2.384 percent, close to the 2.385 percent forecast in a Bloomberg News survey of 10 firms. The auction spurred optimism that the government will be able to continue its record bond sales without spurring higher interest rates.
Best Buy rallied 13 percent to $37.67, its highest price since September, after saying fourth-quarter profit fell less than analysts estimated as results were helped by mobile-phone sales in Europe. Best Buy’s earnings forecast for the year was also higher than analysts projected.
A measure of retailers, hotel and restaurant chains and other so-called consumer discretionary stocks climbed 4 percent to its highest level since January.
ConAgra added 9.2 percent to $16.99, the biggest gain since 2000. The company, which also makes Egg Beaters, Fiddle Faddle popcorn and Fleischmann’s margarine, cut prices for Banquet dinners and cooking oil after record high commodity prices receded and consumers moved to discounted brands.
Dr Pepper Snapple Jumps
Dr Pepper Snapple Group Inc. surged 15 percent to $17.87, its steepest advance since it began trading last April. The drinks maker spun off by Cadbury Plc said earnings will be as much as $1.67 a share this year, more than the $1.61 average estimate of analysts surveyed by Bloomberg.
S&P 500 companies are projected to report profit decreased 36 percent on average in the first quarter and 30 percent in the next, according to analysts’ estimates compiled by Bloomberg. Forecasts show earnings will decline until at least the third quarter, bringing the total slump to nine straight quarters, the longest since Bloomberg began tracking the data in 1998.
GM rose 14 percent to $3.41, the steepest gain in the Dow. The retirements and buyouts of 12 percent of GM’s union workforce open slots for the automaker to hire replacement workers for half the current union rate.
Negative Rates
Treasury one-month bill rates turned negative for the first time since December as investors sought the most easily-traded securities to bolster balance sheets at the end of the quarter.
Financial institutions earn interest on funds deposited with the Federal Reserve. At quarter end, banks prefer to carry securities on their balance sheets instead of cash, driving demand for bills, according to Donald Galante, chief investment officer and senior vice president of fixed income at MF Global Ltd. in New York. He expects rates to rise again by mid-April.
“We’re in a funds rate range of between zero and 0.25 percent,” said David Glocke, who manages $65 billion of Treasuries at Vanguard Group Inc. in Valley Forge, Pennsylvania. “If you keep rates this low, you’re going to end up having periods, especially in the Treasury bill market, where the yield goes negative.”
Historical Performance
The rate on the one-month bill dropped to negative 0.04 percent in New York, compared with 0.03 percent yesterday. It was last negative on Dec. 26, when it reached minus 0.05 percent. Three-month bill rates fell four basis points to 0.15 percent, while six-month bill rates fell two basis points to 0.38 percent.
“Although historically June and December have always been the most sensitive times for dealer balance sheets, in the current environment, this sensitivity may now be felt during every quarter-end,” wrote Ken Silliman, a Treasury bill trader in Greenwich, Connecticut, at RBS Greenwich Capital Markets Inc., in note today. “Compounding this issue is that March 31 is also a Fiscal year-end for Japan. Things should normalize after quarter-end.”
Bill rates turned negative for the first time and note and bond yields reached record lows at the end of last year as investors sought refuge in government securities after the collapse of Lehman Brothers Holdings Inc. and a freeze in global credit markets.
Crude oil rose to the highest in almost four months and gasoline gained as the U.S. stock market advanced, signaling that fuel demand will increase.
$2 a Gallon
Oil climbed 3 percent as equities rallied. The average price of gasoline at the pump rose to $2 a gallon for the first time since November as U.S. supplies fell.
“Oil is in the midst of a gentle upswing because there are finally glimmers of hope on the economic horizon,” said Michael Lynch, president of Strategic Energy & Economic Research, in Winchester, Massachusetts.
Crude oil for May delivery rose $1.57 to $54.34 a barrel at 2:46 p.m. on the New York Mercantile Exchange, the highest settlement since Nov. 28. Prices are up 22 percent this year.
Gold rose for a second straight day on speculation the dollar will slide, boosting demand for the precious metal as an alternative asset. Silver gained.
‘Some Pressure’
The dollar is down 4.5 percent this month against a basket of six major currencies. Gold and the dollar, which moved in tandem for most of 2009 as investors sought a haven from financial turmoil, have returned to an inverse correlation. Analysts said spending by governments to ease the recession may spark inflation, curbing the greenback’s appeal.
“The dollar is still under some pressure,” said Stephen Platt, a commodity analyst at Archer Financial Services Inc. in Chicago. “There’s growing concern that the U.S. monetary base is expanding. That’s helping foster renewed buying interest in gold.”
Gold futures for June delivery rose $4.20, or 0.4 percent, to $942.20 an ounce on the Comex division of the New York Mercantile Exchange. The metal gained 1.3 percent yesterday and is up 6.5 percent this year.
Silver futures for May delivery jumped 18.3 cents, or 1.4 percent, to $13.62 an ounce. The price has surged 21 percent this year.
The Federal Reserve bought $7.5 billion of Treasuries yesterday, its first targeted purchases since the early 1960s. The central bank has already slashed its benchmark interest rate to zero to 0.25 percent to help stimulate growth.
Corn rose for the first time in five sessions on a government report that showed improved demand for supplies from the U.S., the world’s largest exporter of the grain.
Hog futures fell for the fourth time in five sessions as slumping U.S. pork prices signaled the recession is eroding demand for the meat. Cattle futures also dropped.
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