Thursday, August 27, 2009

U.S. Markets Wrap: Stocks Gain on Fuel Rise; Bonds, Dollar Fall

By Elizabeth Stanton

Aug. 27 (Bloomberg) -- U.S. stocks rose, while Treasuries and the dollar slipped, after a rebound in oil and natural gas spurred investors who pushed the Standard & Poor’s 500 Index up 52 percent since March into more bets on riskier assets.

The S&P 500 erased its steepest drop in two weeks to add 0.3 percent, rising for a third day. Crude for October delivery jumped 1.5 percent, reversing a 2.2 percent loss, as speculators bought the contract after it held above $70. Natural gas surged 4 percent in less than 30 minutes, erasing most of a 7.5 percent drop as front-month futures expired.

“This whole rally since the March lows has been extraordinarily highly correlated,” said Liam Dalton, who oversees about $1.1 billion as the New York-based chief executive officer of Axiom Capital Management. “When the commodities go up, it encourages people to think the growth factor is returning globally and they invest in stocks. One feeds into the other.”

The S&P 500 added 2.86 points to 1,030.98 at 4 p.m. in New York after decreasing as much as 1.2 percent. The Dow Jones Industrial Average advanced 37.11 to 9,580.63, rallying for the eighth straight day, the longest winning streak since April 2007. Treasuries fell, driving the yield on 10-year notes up 0.3 point to 3.46 percent. The Dollar Index lost 0.8 percent.

U.S. stocks and energy prices have increasingly moved in lockstep, with the so-called correlation coefficient between the S&P 500 and crude traded in New York reaching the highest level on record this year, according to data compiled by Bloomberg.

Trading Slows

Lower-than-average trading volume in the stock market may be amplifying moves in equities. Almost 1.2 billion shares changed hands on the New York Stock Exchange, 20 percent fewer than the 2009 average, according to data compiled by Bloomberg.

American International Group Inc. soared 27 percent, leading financial stocks higher, on speculation the company may benefit from improved relations with its former chief executive officer. Citigroup Inc. jumped 9.1 percent after the New York Post reported that hedge-fund manager John Paulson is buying the shares. Boeing Co. rose 8.4 percent after saying the 787 Dreamliner will make its first flight this year.

Equities advanced after reaching the most expensive level since 2004. The S&P 500’s surge since March pushed the measure’s price to 19 times operating earnings of its companies from the past year.

The dollar dropped against the euro, yen and Swiss franc as reduced demand for safety encouraged traders to sell the U.S. currency to limit losses. Treasuries fell for the first time in four days as stocks rebounded from earlier losses, reducing the refuge appeal of government securities.

‘Problem Banks’

Stocks fell earlier as the declines in fuel prices dragged down energy shares and regulators boosted the number of “problem banks” to a 15-year high. The Federal Deposit Insurance Corp.’s list of troubled lenders grew 36 percent to 416. The regulator didn’t identify the firms, which are graded based on asset quality, liquidity and earnings. Financial shares led the S&P 500 to a 12-year low in March on concern falling real-estate values would cause widespread insolvency.

“There are good reasons to be suspicious about the strength of the recovery,” said Ralph Shive, manager of the $1.3 billion Wasatch-1st Source Income Equity Fund, which beat 96 percent of similar funds during the past five years. “We could pull back a bunch after the kind of rally we had.”

‘Hank’ Greenberg

Gross domestic product shrank at a 1 percent annual rate from April to June, less than the 1.5 percent decline projected by economists in a Bloomberg News survey, a Commerce Department report showed today in Washington. Corporate earnings rose by

AIG climbed 27 percent to $47.84 for the biggest gain in the S&P 500. Robert Benmosche, named this month as the New York- based insurer’s fifth CEO in four years, told Reuters he contacted former Chief Executive Officer Maurice “Hank” Greenberg after taking the job. Greenberg led AIG for almost four decades, building the company into the world’s largest insurer, before being forced out in 2005.

Benmosche said Greenberg “can help us with the solutions” to AIG’s problems, which led to the $182.5 billion bailout that saved the company from bankruptcy last year. AIG shares have more than tripled since Aug. 4.

Citigroup increased 9.1 percent to $5.05. Paulson has acquired about a 2 percent stake in the New York-based bank, the New York Post reported today, citing unidentified people.

Dell Beats Estimates

Boeing, the second-biggest maker of commercial aircraft, surged 8.4 percent to $51.82. Customers will receive planes in the fourth quarter of 2010, and the project will be profitable following a $2.5 billion third-quarter charge, Boeing said. The new delivery target is about 2 1/2 years behind schedule.

Dell Inc. rose 6.7 percent to $15.65. The second-largest maker of personal computers reported second-quarter sales and profit that exceeded the average analyst estimates. Dell earned 28 cents a share excluding some items on revenue of $12.8 billion. The average estimates were 22 cents a share on revenue of $12.6 billion.

The S&P 500 has risen 0.5 percent this week following reports showing consumer confidence and new home sales exceeded economists’ estimates. Government data today showed fewer Americans filed new claims for jobless benefits last week.

“Everybody is in agreement we’re in an economic recovery,” said John Massey, a money manager at SunAmerica Asset Management Corp. in Jersey City, New Jersey. “What’s disputed is how much is already built into prices currently.”

Bearishness on stocks may foreshadow more gains because pessimistic investors may already have sold shares. A weekly poll of clients by the American Association of Individual Investors found 49 percent were bearish, the third-highest proportion since the record 70 percent in March.

“If investors were unusually bullish I would worry more about stocks,” said David Sowerby, a Bloomfield Hills, Michigan-based money manager at Loomis Sayles & Co., which manages $120 billion. “While valuations are not as dirt-cheap as in March, they’re still reasonably compelling.”

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