U.S. Stocks Rally, Led by Oil Companies; Financial Shares Gain

By Eric Martin


July 30 (Bloomberg) -- U.S. stocks rallied, led by the biggest gain in energy shares in six years, after oil jumped by more than $4 a barrel and a private report showed an unexpected increase in jobs.

All 39 energy producers in the Standard & Poor's 500 Index advanced as crude climbed on a decline in gasoline inventories. Wal-Mart Stores Inc. and Walt Disney Co. gained after ADP Employer Services said payrolls grew by 9,000 in July. Bank of America Corp. and Wachovia Corp. led financial shares higher after the Federal Reserve extended an emergency lending program and the Securities and Exchange Commission prolonged a ban on a type of short sale.

The S&P 500 added 21.06 points, or 1.7 percent, to 1,284.26, capping its biggest two-day rally since April. The Dow Jones Industrial Average jumped 186.13, or 1.6 percent, to 11,583.69. The Nasdaq Composite Index increased 10.1 to 2,329.72. Almost two stocks rose for each that dropped on the New York Stock Exchange.

``A strong up day from energy is going to move the whole index,'' said James Gaul, a money manager at Boston Advisors LLC in Boston, which oversees $2 billion. ``Investors are looking for any excuse possible to push this market up. They're tired of being in a down market.''

Jobs Surprise

The S&P 500 extended its rebound from an almost three-year low on July 15 to 5.7 percent as nine of 10 industry groups advanced. Stocks rallied at the open after the ADP report defied economists' forecasts for a decrease of 60,000 jobs.

Financial stocks briefly erased their advance around midday before rallying in the afternoon. Traders said the late-day gains resulted from investors covering bets that the shares would fall further because of oil's advance.

European and Asian shares climbed and the dollar rose to a one-month high against the euro.

The S&P 500 Energy Index advanced 5.6 percent, its biggest gain since July 24, 2002, as crude oil for September delivery rose $4.58, or 3.8 percent, to $126.77 a barrel in New York.

Exxon, the biggest U.S. crude producer, advanced 4.3 percent to $84.38, while Chevron, the No. 2, rallied 5.3 percent to $87.26.

`Overwhelming News'

``Rising oil prices usually hurt the market but today it went up,'' said Giri Cherukuri, a money manager at Oakbrook Investments LLC in Lisle, Illinois, which oversees $1.4 billion. ``Enough other overwhelming news canceled out the oil price.''

Hess Corp. rose the most since 1981 after the fifth-largest U.S. oil company said second-quarter profit rose 62 percent on higher production and prices. Hess soared $12.72, or 14 percent, to $106.97.

Cameron International Corp. rallied $3.24 to $49.82 after earnings topped estimates and the second-largest U.S. maker of oilfield equipment by market value forecast full-year earnings that would surpass a previous projection.

Profits have topped estimates at almost three-quarters of the S&P 500 companies that have reported second-quarter results so far even as profits slump 21 percent on average from a year earlier, according to data compiled by Bloomberg. As recently as July 3, analysts had forecast a drop of 11 percent in earnings.

Forecasts for the third quarter have improved this week. The 73 companies that gave outlooks say profit will rise an average of 1.8 percent, according to data compiled by Bloomberg. That's up from 0.9 percent at the end of last week though below the 7.3 percent growth projected by analysts.

Awaiting Labor's Report

Wal-Mart, the largest retailer in the world, rose $1.11 to $58.56. Disney, the biggest theme-park operator, climbed 75 cents to $31.67.

The ADP report isn't necessarily a guide to the Labor Department's numbers to be published Aug. 1. Four of the six previous ADP reports showed an increase in employment; all six of the government's estimates showed the workforce contracted. Private payrolls dropped by an average 94,000 a month from January through June, according to official figures, while ADP showed gains of almost 11,000 on average.

Freddie Mac gained 31 cents, or 3.7 percent, to $8.73 and Fannie Mae added 61 cents, or 5.3 percent, to $12.21 after the SEC extended until Aug. 12 an emergency limit on so-called naked short sales in shares of the mortgage-finance companies and 17 brokerages as it prepares broader rules to thwart stock manipulation.

The order aims to keep traders from driving down financial stocks to boost profits after Bear Stearns Cos. and IndyMac Bancorp Inc. collapsed amid rumors they were faltering.

`Fragile Circumstances'

The Fed extended two emergency lending programs until Jan. 30, 2009, ``in light of continued fragile circumstances in financial markets,'' the central bank said. The Primary Dealer Credit Facility for direct loans to securities firms and the Term Securities Lending Facility for loans of Treasuries, both begun in March, ``would be withdrawn should the board determine that conditions in financial markets are no longer unusual and exigent,'' the Fed said.

Financial stocks in the S&P 500 gained 2 percent as a group. Bank of America climbed 4.3 percent to $33.61. Wachovia added 8.8 percent to $17.08. American International Group Inc., the world's largest insurer, gained 91 cents to $26.76.

MetLife Inc., the nation's biggest life insurer, dropped $1.03 to $51.78. The company cut its full-year earnings forecast and said second-quarter net income fell to $946 million, or $1.26 a share, from $1.16 billion, or $1.48. Operating profit, which excludes investment losses, was $1.30 a share, missing the $1.51 average estimate of 19 analysts surveyed by Bloomberg.

Wyeth lost $5.37 to $39.74 after its experimental Alzheimer's drug was linked to a brain-swelling side effect in a test. The company's drug, bapineuzumab, developed with Elan Corp., showed no benefit for the majority of Alzheimer's patients.

`Follow-Through'

The S&P 500 rallied 2.3 percent yesterday as financial shares rose for the first time in four days, led by Bank of America and JPMorgan Chase & Co., on Merrill Lynch & Co.'s plans to sell $8.5 billion of stock and liquidate $30.6 billion of bonds bolstered speculation that Wall Street is overcoming failed subprime bets.

Merrill gained 2.5 percent to $26.91. The third-largest U.S. securities firm said it will maintain its quarterly dividend at the rate it has paid for the past year and a half.

``I'm looking for good follow-through from financials,'' said Robert Stimpson, a money manager at Oak Associates Ltd. in Akron, Ohio, which oversees $1.2 billion. ``We've seen a lot of big one-day moves that faltered. I would like to see continued strength in the sector'' based on ``more indications we're closer to the end of the writedowns.''

Descent From Peak

The S&P 500 has declined 18 percent from an October record as the collapse of the U.S. subprime mortgage market forced financial institutions worldwide to report $476 billion in writedowns and credit losses since the beginning of 2007.

Financial industry profits, which analysts estimated would fall 60 percent, have plummeted 87 percent. Record oil prices drove earnings of ConocoPhillips and Occidental Petroleum Corp. to the highest in their histories. The energy group of the S&P 500 has posted a 15 percent gain in earnings so far.

Comcast Corp. increased 89 cents, or 4.6 percent, to $20.07 today. The largest U.S. cable-television operator said second- quarter profit rose 7.5 percent as the company attracted more customers to its telephone and high-speed Internet services.

RF Micro Devices Inc. gained 49 cents, or 17 percent, to $3.40. The maker of chips and radio systems for mobile phones reported second-quarter profit of 5 cents a share, meeting the average analyst estimate in a Bloomberg survey.

Cummins Inc. rose $4.48, or 6.8 percent, to $70.50. The maker of more than a third of North America's heavy-duty truck engines said that second-quarter profit rose 37 percent on increased engine demand at home and generator sales overseas.