March 25 (Bloomberg) -- U.S. stocks rose, extending the best monthly rally in 17 years for the Standard & Poor’s 500 Index, as unexpected growth in durable-goods orders and new-home sales boosted optimism that the economy is stabilizing.
The Dow Jones Industrial Average reversed a 110-point drop in the final hour of trading as investors overcame concern about a disappointing auction of Treasuries notes. JPMorgan Chase & Co., Bank of America Corp. and Alcoa Inc. led the advance after the government reported a 3.4 percent increase in demand for longer lasting products such as refrigerators, airplanes and computer chips and a 4.7 percent gain in new-home purchases.
The S&P 500 added 1 percent to 813.88 and has jumped almost 11 percent in March for its best gain since 1991. The Dow gained 89.84 points, or 1.2 percent, to 7,749.81. The Nasdaq Composite Index increased 0.8 percent to 1,528.95. Almost three stocks rose for each that fell on the New York Stock Exchange.
“This could be the beginning of an improvement,” said Charles Smith, who manages $700 million in Pittsburgh including the Fort Pitt Capital Total Return Fund, which beat 78 percent of its peers last year. “The market is essentially saying, ‘Now we have an idea that we’ve already seen the worst rate of change in GDP.’”
The S&P 500 erased about half of yesterday’s decline, which was spurred when Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Timothy Geithner proposed tighter regulations on the financial industry. The benchmark U.S. stock index is up 20 percent since March 9 amid speculation the government’s plan to help investors buy toxic assets will revive credit markets.
Whipsaw Afternoon
Benchmark indexes turned negative at about 2 p.m. after an auction of $34 billion in five-year Treasury notes drew a larger-than-forecast yield of 1.849 percent, spurring concern that government attempts to lower interest rates will won’t work.
Treasuries declined for a fifth day following the auction and the failure of a U.K. government debt sale. The last time the U.K. was unable to attract enough investors was in 2002.
The U.K.’s FTSE 100 Index slipped 0.3 percent, trailing a 0.3 percent advance in the Dow Jones Stoxx 600, Europe’s regional benchmark index.
The gains in the S&P 500 and Dow came in the final 10 minutes of trading after Treasuries pared losses.
Bank of America climbed 6.7 percent to $7.70, reversing a 3.6 percent retreat. JPMorgan rose 8.2 percent to $28.56. Wells Fargo & Co. added 5.9 percent to $16.42. Credit Suisse Group AG analysts said the banks are best-positioned to rid themselves of toxic mortgages through the Treasury’s plan to finance private investors purchases, which was announced two days ago.
‘Take Some Stress Away’
“People are looking around and saying, ‘If the banks can get some of the assets off their balance sheets, that will take some stress away and they won’t have to take big hits quarter to quarter,’” said Peter Kovalski, who manages financial stocks at Alpine Mutual Funds in Purchase, New York. Alpine oversees $4.5 billion.
Financial shares in the S&P 500 climbed 4.6 percent collectively and have rallied 55 percent since March 6.
CB Richard Ellis Group Inc., the world’s largest property broker, posted the S&P 500’s steepest gain, jumping 64 percent to $4.92. The shares were raised to “overweight” at JPMorgan Chase following the approval by lenders to amend its credit facility, easing debt terms in exchange for higher financing costs.
Durable Goods, Housing Data
Boeing Co., the world’s second-biggest commercial plane maker, added 2.7 percent to $37.06. The increase in durable goods orders was the biggest gain in more than a year and the first in seven months, the Commerce Department said. The growth followed a 7.3 percent decrease in January that was larger than previously estimated.
Alcoa, the nation’s biggest aluminum producer, jumped 5.5 percent to $7.72.
A gauge of homebuilders in S&P indexes added 2.4 percent, led by a rally of 21 percent in M/I Homes Inc. Purchases of new homes in the U.S. unexpectedly rose in February from a record low as plummeting prices and cheaper mortgage rates lured some buyers. Sales increased to an annual pace of 337,000 after a 322,000 rate in January, the Commerce Department said.
Today’s data and earlier reports showing improvements in retail sales and residential construction helped counter concern that rising unemployment will worsen the recession that spurred a 6.2 percent contraction in the U.S. economy last quarter.
Pepsi, Hewlett-Packard
PepsiCo Inc. rose 1.8 percent to $52.47. The world’s biggest snack-food maker was raised to “buy” from “neutral” at UBS AG, which cited “earnings and investment flexibility.”
Hewlett-Packard Co. added 1.3 percent to $31.01. The world’s largest personal-computer maker was rated “outperform” in new coverage at RBC Capital Markets.
“Investors will benefit from HP’s diverse revenue portfolio, recurring book of business, stronger margin profile and solid management team,” the brokerage wrote in a report. Jabil Circuit Inc. rallied 36 percent to $5.20 for the biggest gain since going public in 1993. The maker of mobile phones for Nokia Oyj said “core” earnings for the second quarter rose to 13 cents per share, beating the average analyst estimate by 8.3 percent.
The gain in stocks came even as JPMorgan cut its earnings estimates for S&P 500 companies as the recession worsened in recent weeks. Earnings per share will be $57 this year compared with a previous forecast of $65, strategist Thomas Lee wrote in a report today. The firm’s prediction is more optimistic than the average forecast of $47.45 a share compiled from a Bloomberg survey of Wall Street strategists.
Earnings Watch
“Achieving our 2009 EPS estimate is almost entirely dependent on financials,” New York-based Lee wrote in a report released today.
He joins Barclays Capital’s Barry Knapp, who reduced his earnings projection to $41 a share, down from a November forecast for $46, earlier this week.
Dean Foods Co. fell the most since December, losing 7.7 percent to $18.80. The largest U.S. milk processor was cut to “neutral” from “outperform” by Credit Suisse Group AG.
Constellation Brands Inc. had the steepest decline since January, sliding 5.4 percent to $12.55. The world’s largest winemaker forecast 2009 earnings excluding some items of $1.62 a share at most, missing the average analyst estimate of $1.69.
The S&P 500 jumped 7.1 percent on March 23, its steepest gain since October, on speculation the U.S. plan to finance purchases of toxic assets will spur growth. The index is down 9.9 percent in 2009 after a 38 percent slump last year, its worst since the Great Depression.
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