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Most US Stocks Advance After Fed Says Economy Is Improving

Dec 2, 2009 @ 02:24 PM, Business, Mary Childs

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Dec. 2 (Bloomberg) -- Most U.S. stocks rose for a third dayafter the Federal Reserve said the economy is improving andgains in metal prices lifted raw-material producers,overshadowing declines in energy companies and banks.

Alcoa Inc., Home Depot Inc. and Verizon Communications Inc.gained at least 1 percent as the Fed’s Beige Book report saidthe economy improved “modestly” across the U.S. from Octoberto mid-November as consumer spending increased. Exxon MobilCorp. and Schlumberger Ltd. led energy shares lower as crudeplunged on an increase in inventories, while JPMorgan Chase &Co. fell on an analyst’s prediction that revenue may fall by $3billion if most derivatives trades move to exchanges.

“I don’t see anything here that threatens a nascentrecovery where the fourth quarter’s going to show positive GDPgrowth,” Peter Sorrentino, who helps manage $13.8 billion atHuntington Asset Management in Cincinnati, said of the Fed’ssummary of economic conditions. “At least at the moment, theeconomy’s still recovering and we’re out of recession.’”

Nine stocks advanced for every five that fell on the NewYork Stock Exchange. The Standard & Poor’s 500 Index added lessthan 0.1 percent to 1,109.24 at 4:05 p.m. in New York. The DowJones Industrial Average slipped 18.9 points, or 0.2 percent, to10,452.68.

Energy producers led the market lower earlier as crudetumbled more than 2 percent after the government’s inventoriesreport showed fuel demand slipped 2.6 percent as refineriesreduced operating rates for the fourth time in five weeks.

Nine-Month Rally

The nine-month, 64 percent rally in the S&P 500 has pushedvaluations to about 22 times its companies’ reported operatingearnings, the most expensive level since 2002, according to datacompiled by Bloomberg. Analysts expect full-year earnings in themeasure to drop 11 percent on average before rebounding 22percent in 2010, estimates compiled by Bloomberg show.

The benchmark index for U.S. equities may climb to 1,250 bythe end of next year as earnings continue to beat forecasts, UBSAG strategists said.

“Large-cap, dividend paying, globally oriented stocksoffer good risk/reward,” strategists including ThomasDoerflinger wrote in a report dated today.

Verizon added 1 percent to $32.65. AT&T Inc., the largestU.S. phone company, agreed to drop its lawsuit to stop a VerizonWireless advertising campaign that AT&T said unfairly depictsits mobile-phone network coverage.

Alcoa, the largest aluminum producer, jumped 6.6 percent to$13.64 as the metal climbed 2.6 percent to a more than one-yearhigh of $2,157 a metric ton in London.

Metals Gain

Freeport-McMoRan Copper & Gold Inc. advanced 1.5 percent to$85.18. Gold rose to a record $1,218.40 an ounce as GoldmanSachs Group Inc. boosted its 2010 forecast for the preciousmetal 14 percent to $1,099 an ounce. Copper climbed to a 14-month high, while zinc, lead and tin also advanced.

Bemis Co. rose 4.4 percent to $30.90, the highestsince July 2007. The maker of flexible packaging materials wasadded to the “Top Picks Live” list at Citigroup Inc. TimothyThein, the analyst, increased his per-share earnings estimatesfor 2009 and 2010 and his price forecast to $36 from $32, citingBemis’s pending acquisition of Rio Tinto Plc’s food-packaging business.

CF Industries Holdings Inc. rose 5.1 percent to$90.27. Agrium Inc. plans to nominate a slate of directors forCF’s board next year as it seeks to take over the operator ofNorth America’s two largest nitrogen-fertilizer plants. Agriumadded 5.5 percent to $60.11.

Ciena Corp. climbed 4.9 percent to $12.88. NokiaSiemens Networks challenged Ciena’s bid for Nortel NetworksCorp.’s optical-networking business and submitted a new bid of$810 million in cash for the assets.

Airlines Upgraded

U.S. airline shares rose after the sector was upgraded to“attractive” from “in-line” at Morgan Stanley, which saidinvestors would be “hard-pressed to identify a better entry-point” in the coming months. Morgan Stanley raised itsrecommendation for AMR Corp., the parent of American airlines,and UAL Corp., which owns United Airlines, to “overweight”from “equal weight.”

AMR increased 8 percent to $6.79. UAL jumped 12 percent to$9.29. Delta Air Lines Inc., the world’s largest airline, added7.8 percent to $9.29

JPMorgan lost 0.7 percent to $41.93, paring a slide of asmuch as 1.8 percent. A change in rules on derivatives tradingmay mean a reduction in earnings per share of as much as 20cents in a “worst case” situation, Bernstein analyst JohnMcDonald said in a research note after meeting with StevenBlack, vice chairman of the investment bank. Derivativesaccounted for about 8 percent of JPMorgan’s revenue from 2006 to2008, he said.

Banking Regulation

U.S. Treasury Secretary Timothy Geithner said he sees a“good chance” that Congress will pass a financial regulatoryoverhaul bill this year, and he urged lawmakers to act quickly.A House panel approved legislation strengthening U.S. authorityto police large, complex firms that pose risks to the economy,advancing the Obama administration’s effort to overhaul U.S.financial rules.

Bank of America Corp. lost 1.5 percent to $15.65, whileWells Fargo & Co. slid 1.9 percent to $27.45.

Dyax Corp. surged 21 percent to $4.23. The drugmaker saidit gained U.S. regulatory approval for its treatment ofhereditary angioedema, a rare immune disease that causesdangerous swelling.

Santarus Inc. rallied 8.6 percent to $4.66. The maker of afast-acting acid-reflux drug said it earned $20 million afterthe FDA approved Merck & Co.’s application to market Zegeridcapsules as an over-the-counter treatment for frequentheartburn.

GameStop Tumbles

GameStop Corp. fell the most in the S&P 500, sinking 8.3percent to $21.87. The world’s largest video-game retailer maybe forced to reduce prices after Wal-Mart Stores Inc. offereddiscounts on its top video games, according to Tony Wible, ananalyst with Janney Montgomery Scott LLC.

Cummins Inc. declined 7.9 percent to $43.42. The largestmaker of heavy-duty diesel truck engines in North America saidit plans to temporarily cut about 400 jobs at its Jamestown, NewYork, plant starting in January.

The Fed’s Beige Book survey said eight regions “indicatedsome pickup in activity or improvement in conditions,” while theother four said conditions were little changed or mixed. Thelabor and commercial real estate markets remained “weak,” thereport said.

Equity-index futures fell before the open of U.S. exchangesafter ADP Employer Services said companies in the U.S. cut169,000 jobs last month, topping the 150,000 median estimate ina Bloomberg survey of economists.

“The patient has survived, but it’s not ready to run amarathon,” said Matt McCormick, a banking-industry analyst andportfolio manager at Bahl & Gaynor Inc. in Cincinnati, whichoversees $2.5 billion. “The financials have not been keepingpace with some of the rally. You’re seeing a subtle shift tohigher quality companies because people in my opinion just wantthe year to be over.”

To contact the reporter on this story:Mary Childs in New York at mchilds4@bloomberg.net.

Source: Bloomberg

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