May 18 (Bloomberg) -- U.S. stocks rallied, helping the Standard & Poor’s 500 Index recover more than half of last week’s loss, as analysts recommended Bank of America Corp. and Lowe’s Cos. beat earnings projections. Oil climbed to a six- month high above $59 a barrel, while Treasuries fell.
Bank of America gained 9.9 percent after Citigroup Inc. said it may have sold $4 billion in shares and Goldman Sachs Group Inc. put the lender on its “conviction buy” list. Financial stocks led the advance after the cost of borrowing in dollars between banks dropped the most in two months as credit markets continued to thaw. Lowe’s, the home-improvement retailer, added 8.1 percent.
“It’s a buying stampede,” said Jeffrey Saut, chief investment strategist at Raymond James & Associates in St. Petersburg, Florida, which manages $222 billion. “Earnings estimates have been managed down way below where they should be. We’ve seen the worst of GDP figures.”
The S&P 500 jumped 3 percent to 909.71 at 4:05 p.m. in New York, its steepest gain in two weeks. The Dow Jones Industrial Average surged 235.44 points, or 2.9 percent, to 8,504.8. Europe’s Dow Jones Stoxx 600 Index rallied 2.4 percent, while the MSCI Asia Pacific Index lost 0.4 percent. India’s benchmark index soared a record 17 percent after the prime minister’s party won nationwide elections. Fourteen stocks rose for each that fell on the New York Stock Exchange.
Today’s advance restored the S&P 500’s yearly gain, leaving it up 0.7 percent in 2009. The benchmark index for U.S. stocks slid 5 percent last week after it reached the priciest level relative to earnings in seven months, companies from Ford Motor Co. to U.S. Bancorp sold shares to raise capital and General Motors Corp. said bankruptcy is probable.
Vix Tumbles
The benchmark index for U.S. stock options fell to the lowest level since before Lehman Brothers Holdings Inc.’s September bankruptcy. The VIX, as the Chicago Board Options Exchange Volatility Index is known, slid 8.7 percent to 30.24. The index, which measures the cost of using options as insurance against declines in the S&P 500, is down from a record 80.86 in November.
Between March 9 and May 8, the S&P 500 surged 37 percent in the steepest two-month advance since the 1930s on signs the global recession is easing. Still, U.S. stocks are 55 percent cheaper than shares of European companies just as the price of options to protect against losses in Europe climbs. The gap in valuations is the widest since 2003, Bloomberg data show.
While profit shrank 37 percent from a year earlier at the 445 companies in the S&P 500 that reported quarterly results since April 7, Bloomberg data show they beat analysts’ estimates by an average of 9.3 percent.
Lowe’s, Home Depot
Lowe’s rose 8.1 percent to $19.94. The retailer reported a smaller decline in first-quarter earnings than analysts estimated as it reined in costs amid the recession. Profit of 32 cents a share beat the average analyst estimate by 25 percent, according to data compiled by Bloomberg.
Home Depot Inc., Lowe’s bigger rival, gained 6.6 percent to $26.02.
Bank of America rallied 9.9 percent to $11.73 to post the top gain in the Dow and help lead a gauge of financial shares up 7.2 percent, the biggest advance in the S&P 500 among 10 industry groups. The largest U.S. lender by assets rose after Goldman Sachs Group Inc. cited its progress on raising capital and another “solid” quarter for the mortgage and capital markets businesses.
The lender may have raised as much as $4 billion issuing common shares, said Keith Horowitz, a Citigroup banking analyst, in a report dated yesterday. Regulators told Bank of America to raise $33.9 billion after conducting stress tests to assess its ability to weather a prolonged recession.
Goldman Rallies
Goldman Sachs added 6.5 percent to $143.15. Citigroup raised the bank’s share-price estimate by 10 percent to $160, citing increased debt and equity underwriting. Citigroup also boosted profit estimates through 2011.
Goldman, JPMorgan Chase & Co. and Morgan Stanley applied to repay the combined $45 billion they received in October from the government’s Troubled Asset Relief Program, said people familiar with the matter.
The three New York-based banks need approval from the Federal Reserve, their primary supervisor, to return the money, according to the people, who requested anonymity because the application process isn’t public. Spokespeople for all three banks declined to comment, as did Calvin Mitchell, a spokesman for the Federal Reserve Bank of New York.
JPMorgan added 6.7 percent to $37.26. Morgan Stanley gained 8.2 percent to $28.28.
‘Historical Relationship’
Financial shares also rose after the London interbank offered rate, or Libor, for three-month loans in dollars fell four basis points to 79 basis points today, the biggest decline since March 19, according to British Bankers’ Association data.
“Capital is now available,” said Peter Sorrentino, who helps manage $13.8 billion at Huntington Asset Management in Cincinnati. “Indicators of stress in the financial system are getting back to their historical relationship. That’s bringing investors back into the marketplace.”
Janus Capital Group Inc., the Denver-based investment firm, surged 18 percent to $10.16 for the biggest gain in the S&P 500.
“It appears that equity fund flows turned positive in April” following first-quarter outflows, Keefe Bruyette & Woods Inc.’s analyst Robert Lee wrote in a note to clients.
Oil Climbs
Energy shares in the S&P 500 rallied 3.1 percent collectively after oil climbed 4.8 percent to $59.03 a barrel. Gains in energy prices came after a Nigerian military group threatened to block waterways used for energy exports and an explosion at a Sunoco Inc. refinery affected operations in the Northeast U.S.
Exxon Mobil Corp., the world’s largest company by market value, added 2 percent to $70.50. ConocoPhillips, the second- biggest U.S. oil refiner, rose 3.6 percent to $45.52.
Macy’s Inc. advanced 7.2 percent to $12.14. The second- biggest U.S. department store chain was added to the “conviction buy list” at Goldman Sachs, which cited the retailer’s $400 million cost savings plan and prospects for improvement in sales as the economy recovers.
Lennar Corp. surged 14 percent to $10.02. The fourth- biggest U.S. homebuilder by revenue was raised to “buy” from “hold” at Citigroup. KB Home added 8.2 percent to $16.83. Pulte Homes Inc. advanced 7 percent to $10.30.
Homebuilder Confidence
An index of builders climbed 7.5 percent as all 13 companies in the group advanced. Confidence among U.S. homebuilders in May increased to the highest level since September, providing further evidence the housing slump that started in 2006 may be closer to a floor. The National Association of Home Builders/Wells Fargo index of builder confidence rose to 16 from 14 the prior month, capping the first back-to-back gain since February 2008.
Treasury Secretary Timothy Geithner said the U.S. economy has stabilized, even though many people may not feel a turnaround immediately.
“Unemployment is going to keep increasing for a while,” Geithner said in an appearance at the National Press Club in Washington. “It’s not going to feel better for a long time for millions of Americans.”
Broadcom Corp., the maker of chips for wireless headsets and TVs, advanced 4.3 percent to $21.73. Morgan Stanley upgraded U.S. semiconductor makers, saying the “fundamentals of the group are bottoming.”
‘Less Bad’
The outlook for technology spending in 2009 should be “less bad” than expected, Barclays Plc analyst Benjamin Reitzes wrote in a report. A Barclays survey of 100 chief information officers showed they expect spending to decline 2.4 percent this year, less than the average analyst estimate for a 10 percent drop, he wrote.
ICICI Bank Ltd., India’s second-largest bank, surged as the country’s benchmark stock index jumped a record 17 percent after Prime Minister Manmohan Singh’s Congress Party won nationwide elections. Share trading was halted for the first time ever after the Sensitive Index, or Sensex, breached a daily limit set by the market regulator. ICICI American depositary receipts gained 25 percent to $29.29 in New York.
A drop in U.S. stocks would probably be limited to 10 percent because of mutual-fund investments and the bullish “head and shoulders bottom” pattern formed by a graph of the S&P 500, according to a Bank of America Corp. analyst.
New assets being stashed in U.S. mutual funds have “improved significantly,” Mary Ann Bartels, a Bank of America analyst who studies charts to make forecasts, wrote in a report today. Money managers have seen net investments during eight of the past nine weeks, with almost $5.5 billion added in total.
Fund Flows
“There is more room for flows to support the current rally in equities,” said Bartels, ranked second among analysts who study price charts in Institutional Investor magazine’s most recent survey.
Allegheny Energy Inc. slumped 8.3 percent to $23.63. The owner of utilities in four U.S. states was downgraded to “market perform” from “outperform” at Wachovia Capital Markets LLC.
AutoNation Inc. lost 1.9 percent to $15.66. The largest U.S. new-vehicle retailer was cut to “sell” from “neutral” at Goldman Sachs Group Inc.
Treasuries declined as the equity rally reduced demand for the safety of government debt. Prices on government securities fell, pushing yields up, even as the Federal Reserve bought $3.18 billion of notes. The yield on the 10-year note rose 11 basis points, or 0.11 percentage point, to 3.24 percent. Thirty- year bond yields added 13 basis points to 4.21 percent.
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