U.S. Stocks Gain on Signs Economic Recovery Is Strengthening
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By Nick Baker and Mary Childs
Dec. 12 (Bloomberg) -- U.S. stocks advanced this week, overcoming concern that credit losses will rise, after data on jobless claims and retail sales signaled the economic recovery is strengthening.
Delta Air Lines Inc. and US Airways Group Inc. surged more than 9 percent after oil extended its decline to eight days, the longest losing streak in six years. Gannett Co. soared 28 percent, the most in the Standard & Poor’s 500 Index, after the newspaper publisher forecast more profit than analysts estimated. Alcoa Inc. jumped 12 percent as JPMorgan Chase & Co. boosted its earnings projections for the aluminum producer.
The S&P 500 added less than 0.1 percent to 1,106.41 after rising the final three days of the week. The Dow Jones Industrial Average rose 82.60 points, or 0.8 percent, to 10,471.50. The Nasdaq Composite Index fell 0.2 percent to 2,190.31.
“There is an underpinning of greater confidence than there has been for a long time,” said Matthew Kaufler, a Rochester, New York-based money manager at Federated Clover Investment Advisors, which oversees $392 billion.
The S&P 500 lost a total of 1.3 percent on Dec. 7 and Dec. 8 after Federal Reserve Chairman Ben S. Bernanke said the U.S. economy faces “significant headwinds,” while a reduction in Greece’s debt rating and a $3.65 billion loss by a Dubai developer added to speculation that global credit markets are struggling to recover.
Spain Roils Markets
S&P’s shift to a negative outlook for Spain’s debt added to that concern on Dec. 9, roiling equity markets worldwide. The S&P 500 rebounded from a loss of as much as 0.6 percent that day to climb 0.4 percent at the 4 p.m. close of trading in New York, boosted by shares of 3M Co. and Sprint Nextel Corp.
The index then advanced 1 percent in the next two days after the four-week average of initial jobless claims slid to a one-year low of 473,750, retail sales climbed more than twice as fast as economists estimated and the Reuters/University of Michigan index of consumer confidence topped estimates.
“Clearly there was a scare that there was going to be some kind of domino effect, but after the initial knee-jerk reaction, some sanity was restored and the dominos didn’t begin to fall,” Kaufler said, referring to Dubai, Greece and Spain. “It tells me we’ve come a hell of a long way in 12 months, because 12 months ago if we’d caught similar news headlines, it would have been a down-3-percent day.”
$69.46 a Barrel
Delta, the world’s biggest airline, led the Amex Airline Index to its highest level since February, as analysts signaled optimism about travel demand and oil fell to two-month low of $69.46 a barrel in New York. Delta added 13 percent to $11.25 and US Airways climbed 9 percent to $4.83.
Gannett increased 28 percent to $13.16. Chief Financial Officer Gracia Martore said the USA Today publisher is likely to beat analysts’ average estimate for fourth-quarter earnings. Martore, speaking at the UBS AG Global Media and Communications Conference in New York on Dec. 9, said she was “comfortable” that the publisher would report earnings at the high end of the analysts’ range of 48 cents to 62 cents a share.
Alcoa rallied 12 percent to $14.61, the biggest weekly gain since June. JPMorgan said the company’s stock and per-share profit may rise more than previously projected next year as metal prices increase. Alcoa’s earnings will be $1.45 a share in 2010, compared with an earlier prediction of $1.15, according to JPMorgan.
Bearish Sign
Utilities rose 3.6 percent as a group, the most among 10 industries in the S&P 500, a bearish sign for some investors. FPL Group Inc., owner of Florida Power & Light Co., jumped 6.6 percent to $56.25 for the steepest advance.
The S&P 500 has rallied 64 percent from a 12-year low in March after a four-quarter economic contraction ended. The biggest equity market rally since the Great Depression may fade after the ratio between indexes tracking transportation and utility stocks generated a so-called triple top, according to David A. Rosenberg of Gluskin Sheff & Associates Inc.
The Dow Jones Transportation Average that follows airlines, railroads and trucking companies climbed to 10.75 times the level of the Dow Jones Utilities Average on Sept. 11, a multiple last seen in October 2008. The ratio failed to surpass that peak twice in the next two months, forming a triple top that some analysts say signals a slump.
Charles Dow
The utilities gauge surged 3.9 percent this week, while the transportation average slipped 0.2 percent, driving the ratio down to 10.1 from 10.5. Transportation stocks are trailing utilities when the multiple shrinks. Charles Dow, co-founder of the Wall Street Journal, created the shipping average in 1884 to help measure the health of the U.S. economy.
Former Federal Reserve Chairman Paul Volcker said imbalances in the structure of the U.S. economy pose a bigger challenge than the financial crisis and will impede economic growth for some time.
“We have another economic problem which is mixed up in this of too much consumption, too much spending relative to our capacity to invest and to export,” Volcker, an adviser to President Barack Obama, said Dec. 11 in Berlin. “It’s involved with the financial crisis but in a way it’s more difficult than the financial crisis because it reflects the basic structure of the economy.”
To contact the reporters on this story: Nick Baker in New York at nbaker7@bloomberg.net; Mary Childs in New York at mchilds4@bloomberg.net.
Last Updated: December 12, 2009 08:00 EST
