Tuesday, November 18, 2008

U.S. Stocks Rally, Led by Energy, Computer Shares; Exxon Gains

By Eric Martin

Nov. 18 (Bloomberg) -- U.S. stocks gained in the last hour of trading as a rally in energy and technology shares overpowered earlier declines spurred by a drop in homebuilder confidence to the lowest level on record.

Hewlett-Packard Co. jumped 14 percent as earnings topped analysts' estimates, while Exxon Mobil Corp. climbed more than 4 percent. The advance in equities accelerated near the close as investors tracking the Standard & Poor's 500 Index bought shares to replace Anheuser-Busch Cos., which was removed from the gauge following its takeover by InBev NV.

The S&P 500 added 1 percent to 859.12, the first advance in three days. The Dow Jones Industrial Average increased 151.17 points, or 1.8 percent, to 8,424.75. The Nasdaq Composite Index rose less than 0.1 percent to 1,483.27. About six stocks retreated for every five that advanced on the New York Stock Exchange.

``A number of industries' and sectors' stocks have fallen by huge percentages over the past year and appear to be at pretty attractive valuations based on historical measures,'' said Dean Gulis, part of a group that manages about $2.5 billion for Loomis Sayles & Co. in Bloomfield Hills, Michigan. ``There can be some small-scale buying done in this market environment.''

The S&P 500 earlier slid below its lowest closing level since 2003 after the National Association of Home Builders/Wells Fargo index of builder confidence decreased to a worse-than- forecast reading of 9, the lowest level since record-keeping began in 1985.

Worst Year Since '31

The benchmark index for U.S. equities is down more than 41 percent in 2008, poised for its worst year since 1931, as credit losses and asset writedowns at global financial firms approach $1 trillion. Profits slumped 17 percent on average at companies in the index that have reported third-quarter results, according to Bloomberg data. Analysts expect an 8.5 percent drop in full-year earnings, based on estimates compiled by Bloomberg.

The S&P 500 erased a drop of as much as 2.8 percent in the final hour of the trading session as managers of funds that mimic the index prepared for the replacement of Anheuser-Busch by Stericycle Inc. Anheuser-Busch, with a market value of about $50 billion, was set to be removed following the close of its acquisition by InBev NV of Belgium.

Index funds, which represent about 10 percent of the stock market, ``got $5 billion from owning BUD,'' said Michael Buek, a principal at Vanguard Group Inc. in Valley Forge, Pennsylvania, manager of the biggest S&P 500 index fund. BUD is the ticker symbol for Anheuser-Busch, brewer of Budweiser beer.

`Put to Work'

``The stock that was added was a $500 million weight, so about $4.5 billion has to be put to work,'' said Buek. ``That money was spent across the other 499 names. To perfectly track the close, you'd want to put the $4.5 billion to work on the close.''

The earlier retreat in the S&P 500 pushed its dividend yield above the yield on 10-year Treasury notes for the first time since 1958 today, according to data compiled by Bloomberg and Peter Bernstein, the financial author and president of Peter L. Bernstein Inc. Dividends paid by S&P 500 companies were 3.57 percent of the index's price as of 1:13 p.m., compared with the 10-year note's yield of 3.54 percent.

``It's something I've been watching for quite some time,'' said Fritz Meyer, the Denver-based senior market strategist at Invesco Aim, which manages about $358 billion. ``It speaks to the opportunity in stocks. By comparison to Treasuries, every asset class is on sale.''

Tech Rally

Hewlett-Packard added $4.25, or 14 percent, to $33.59. The computer maker reported fourth-quarter earnings of $1.03 a share, excluding reorganizing expenses and other costs, exceeding the $1 average analyst estimate. The results signal Hewlett-Packard is withstanding an economic crisis that has sapped sales at other technology companies, including Cisco Systems Inc. and Intel Corp.

Hewlett-Packard led the S&P 500 Information Technology Index to a 1.9 percent advance. The gains came after the group's valuation slid to less than 12 times earnings, the cheapest since Bloomberg began tracking the data in 1995.

Yahoo! Inc. jumped 8.7 percent to $11.55 after Chief Executive Officer Jerry Yang agreed to step down, opening the door for a fresh bid from Microsoft Corp. The company's market value has dropped by more than $20 billion since Yang took over as CEO in June 2007 as discussions with Microsoft ended in failure, an ad partnership with Google Inc. was derailed and talks with Time Warner Inc.'s AOL stalled. Yahoo ``might be worth $21'' a share to an acquirer, Goldman Sachs Group Inc. said.

Energy companies climbed 3.3 percent as a group, the most among 10 industries in the S&P 500, as they also traded close to their lowest price-to-earnings valuation on record. Exxon Mobil Corp., the largest U.S. energy company, gained $2.95, or 4 percent, to $76.33.

Home Depot Beats

Home Depot Inc., the world's largest home-improvement retailer, added 71 cents, or 3.6 percent, to $20.71 after profit declined less than analysts estimated and the company repeated its earnings forecast for the year. As U.S. consumers cut back on renovations and cabinet purchases, Home Depot has slashed corporate expenses and closed stores to help remain profitable.

Walt Disney Co. gained 4.7 percent to $20.67 for the biggest jump in the Dow average after Hewlett-Packard. The biggest theme- park operator was raised to ``buy'' from ``neutral'' by Pali Capital LLC, which predicted a ``modest positive'' rebound in attendance at the company's resorts in 2010.

Citigroup, CIT Tumble

Citigroup Inc. dropped 53 cents, or 6 percent, to $8.36 and traded below $8 for the first time since 1995. The bank that yesterday announced plans to cut 52,000 jobs may post a loss of 30 cents per share next year, compared with a previous estimate of a $1.50 profit, Deutsche Bank AG analyst Mike Mayo wrote in a note.

CIT Group Inc. fell the most in the S&P 500, losing 89 cents, or 26 percent, to $2.60. The commercial lender's stock- price forecast was reduced to $11 from $13 by Barclays Plc, which said its share sale will dilute earnings.

Corning Inc. declined 62 cents, or 6.9 percent, to $8.39. The biggest maker of glass for flat-panel televisions said fourth-quarter sales will miss its forecast as demand for TVs and computer monitors wanes.

Medtronic Inc. dropped $4.82, or 13 percent, to $31.60. The world's second-biggest maker of medical devices said fiscal second-quarter profit fell 14 percent, missing analysts' estimates, on legal costs.

`Far From Normal'

The cost of borrowing in dollars for three months in London fell for the first time in four days ahead of Congressional testimony from Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson. The London interbank offered rate, or Libor, that banks say they charge each other for three- month loans declined two basis points to 2.22 percent today, according to the British Bankers' Association.

Bernanke said lending in the U.S. is ``still far from normal,'' even after emergency federal programs helped reduce interest rates for some borrowers.

``There are some signs that credit markets, while still quite strained, are improving,'' Bernanke told the House Financial Services Committee. ``However, overall, credit conditions are still far from normal.''

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