By Michael Patterson
Jan. 7 (Bloomberg) -- U.S. stocks advanced for the first time this year, led by drugmakers and utilities, after analysts recommended buying shares of companies least affected by an economic slowdown.
Eli Lilly & Co., Biogen Idec Inc. and Celgene Corp. helped push health-care companies to their biggest advance in five months. FPL Group Inc. led gains in utilities, the top-performing industry over the past three months. AT&T Inc., the largest U.S. phone company, and Altria Group Inc., the biggest maker of tobacco products, climbed after Deutsche Bank AG and Goldman Sachs Group Inc. advised purchasing the stocks.
The Standard & Poor's 500 Index advanced 4.55, or 0.3 percent, to 1,416.18, rebounding from its worst start to a year since 2000. The Dow Jones Industrial Average increased 27.31, or 0.2 percent, to 12,827.49. The Nasdaq Composite Index lost 5.19, or 0.2 percent, to 2,499.46, weighed down by a 10 percent drop in Nvidia Corp., the second-largest maker of computer graphics chips.
About six stocks rose for every five that fell on the New York Stock Exchange. The S&P 500 swung between gains and losses at least 35 times during the day.
``Both the bulls and bears have pretty good cases and that's why we're seeing this flip-flopping,'' said Walter ``Bucky'' Hellwig, who helps oversee $30 billion as senior vice president at Morgan Asset Management in Birmingham, Alabama. ``There's a lot of uncertainty playing out, so we'll have this tug-of-war until everything becomes more clear.''
U.S. equities dropped last week as reports on jobs and manufacturing increased concern the economy will shrink. Utilities, health-care providers, telephone companies and makers of consumer products have been the best performers among 10 industry groups in the S&P 500 this year as investors sought shares that may weather an economic downturn.
The S&P 500 fell as much as 0.6 percent today before rallying in the final hour. Energy and technology shares were the biggest drag on the index after lower oil prices dimmed the profit outlook for fuel producers and analysts said slower economic growth will hurt earnings at technology companies.
Eli Lilly added $2.75 to $54.55. The Indianapolis-based drugmaker was upgraded by Morgan Stanley analysts, who boosted their per-share profit estimates for this year and next. They said investors may buy the stock because its earnings will hold up in a ``recessionary backdrop.''
Biogen gained $4 to $59.22. The drugmaker that failed last month to find a buyer forecast a revenue increase of as much as 20 percent in 2008. The company said earnings last year probably exceeded an earlier prediction of up to $2.70 a share.
Celgene increased 84 cents to $50.49. The maker of cancer drugs said fourth-quarter revenue from its top-selling product will exceed Wall Street analysts' estimates.
Health-care companies in the S&P 500 rose 2.2 percent as a group for the second-best gain among 10 industries today.
FPL Group, a Florida-based utility, added $3.21, or 4.7 percent, to $72.03. A gauge of 31 utilities in the S&P 500 gained 2.5 percent. The industry has been the best performer since the S&P 500 peaked on Oct. 9 amid concerns that a weakening labor market and rising losses at banks and brokerages may cause the world's biggest economy to contract.
Utilities' ``business models don't seem to be disturbed'' by an economic slowdown, said Jim Halloran, who helps manage $35 billion at National City Private Client Group in Cleveland. ``I don't think the amount of electric power used is going to go down any time soon.''
AT&T rose 54 cents to $41.43. Deutsche Bank said the company is its ``top pick'' among so-called large-cap stocks this year, citing the potential for ``mid-single-digit'' revenue growth and the possibility that more than $17 billion will be returned to shareholders through 2009.
Altria rose $2.33, or 3.1 percent, to $77.23 for the top gain in the Dow average. Goldman analyst Judy Hong said the planned spinoff of the company's international unit will help boost the share price to $89.
Anheuser-Busch Cos. added $2.45 to $54.15. The world's second-largest brewer said fourth-quarter U.S. shipments to wholesalers rose the most in almost two years on demand for imported beers.
The gains in Altria and Anheuser-Busch helped push a gauge of consumer-products companies in the S&P 500 up 1.7 percent, the biggest rise since Nov. 13.
``We believe staying defensive is the correct strategy at the current time,'' David Kostin, Goldman's New York-based chief sector strategist, wrote in a research note today. ``A U.S. recession is being priced into equity prices.''
Merrill Lynch & Co. sector strategist Brian Belski also reiterated his recommendation that investors buy shares of health-care, phone and consumer-product companies.
The U.S. economy probably grew at a 1 percent pace in the fourth quarter after expanding 4.9 percent the previous three months, according to economists surveyed by Bloomberg News.
Treasury Secretary Henry Paulson today told the New York Society of Security Analysts that further signs of ``slower growth'' in the U.S. will emerge before the economy shakes off the effects of the housing crisis.
Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, said that ``negative'' signals on the economy are increasing and that he expects ``weak'' growth in the first half of the year.
Treasury 10-year notes rose for a seventh straight day, extending their rally to the longest since July, as traders increased bets the Federal Reserve will cut borrowing costs a half-percentage point this month.
Futures contracts on the Chicago Board of Trade show a 70 percent probability that the Fed will trim the 4.25 percent target rate for overnight lending between banks by a half- percentage point this month, compared with a 66 percent chance on Jan. 4. The rest of the bets are for a quarter-point reduction at the Jan. 30 meeting.
Energy shares were the biggest drag on the S&P 500, falling 1.2 percent as a group. Crude oil declined more than $2 a barrel in New York on speculation demand will drop because of slowing economies in the U.S. and Europe and as warm weather crimped fuel demand in the Northeast.
Exxon Mobil Corp., the biggest U.S. energy company, dropped 86 cents to $91.22. Chevron Corp., the second-largest, lost $1.22 to $92.13.
Technology shares also slumped, sending the Nasdaq to the steepest seven-day slide since October 2002. Apple Inc., Research In Motion Ltd. and Dell Inc. helped push the index lower after Morgan Stanley cut its profit estimates for computer-hardware companies.
Apple, the maker of the iPod music player and Macintosh computers, dropped $2.41 to $177.64. Research In Motion, maker of the BlackBerry e-mail phone, declined $3.52 to $99.83. Nvidia decreased $3.10 to $26.90. Dell, the world's second-biggest personal-computer maker, lost 83 cents to $21.26. Hewlett-Packard Co., the largest, dropped $1.52 to $45.35. A gauge of 71 technology shares in the S&P 500 dropped 0.8 percent.
Morgan Stanley cut its estimates for earnings growth at computer-hardware companies to reflect a ``moderate'' U.S. recession. Profit for those companies may rise 12 percent, rather than the 23 percent average estimate, analyst Kathryn Huberty wrote.
International Business Machines Corp. fell $1.08 to $100.05. UBS AG analyst Benjamin Reitzes cut his rating on the world's biggest computer-services company to ``neutral'' from ``buy.'' IBM's customers probably will spend less on storage, servers and personal computers to protect themselves from ``economic pressures,'' he wrote in a research note.
Technology ``should perform poorly should the economy weaken further,'' Bear Stearns Cos. Chief Investment Strategist Jonathan Golub wrote in a research note. ``The current level of optimism in technology names makes them particularly vulnerable should the economy turn south.''
The Russell 2000 Index, a benchmark for companies with a median market value of $543.1 million, gained 0.3 percent to 723.95. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, rose 0.1 percent to 14,229.80. Based on its advance, the value of stocks increased by $23.7 billion.
Altria Group Inc. (MO US)
Anheuser-Busch Cos. (BUD US)
Apple Inc. (AAPL US)
AT&T Inc. (T US)
Biogen Idec Inc. (BIIB US)
Celgene Corp. (CELG US)
Chevron Corp. (CVX US)
Dell Inc. (DELL US)
Eli Lilly & Co. (LLY US)
Exxon Mobil Corp. (XOM US)
FPL Group Inc. (FPL US)
International Business Machines Corp. (IBM US)
Nvidia Corp. (NVDA US)
Research In Motion Ltd. (RIMM US)