Jan. 28 (Bloomberg) -- U.S. stocks rose, extending a global rally, as President Barack Obama prepared to set up a so-called bad bank to absorb toxic investments and Yahoo! Inc. and Germany’s SAP AG reported better-than-estimated earnings.
Citigroup Inc. and Bank of America Corp. surged more than 13 percent after a White House official said Obama’s team may announce the outlines of its plan next week. Deutsche Bank AG and Barclays Plc added at least 18 percent in Europe. Yahoo and SAP, the largest maker of business-management software, climbed more 5.2 percent. The Standard & Poor’s 500 Index gained for a fourth straight day, its longest streak since November.
“The impact of the bad bank idea is positive for equities in that it moves us in the direction of finding a solution to the cloud of bad assets that continue to weigh on proper valuations,” said Alan Gayle, senior investment strategist at Ridgeworth Capital Management, which oversees $70 billion in Richmond, Virginia. It’s “giving nervous markets a lift.”
The S&P 500 added 3.4 percent to 874.09, with financial companies posting 19 of the top 20 gains. The Dow Jones Industrial Average climbed 200.72 points, or 2.5 percent, to 8,375.45. Europe’s benchmark, the Dow Jones Stoxx 600 Index, rose 3.2 percent and the MSCI Asia Pacific Index gained 0.5 percent.
Benchmark indexes climbed to their highs after the Federal Reserve left its benchmark interest rate as low as zero and said it may keep it at “exceptionally low levels” for some time. The S&P 500, which has dropped for three straight weeks, is still 16 percent above an 11-year low reached on Nov. 20 amid optimism that Obama’s stimulus package will revive the economy.
Stimulus, ‘Bad Bank’
Treasuries fell, led by the biggest decline in 30-year bonds in three weeks, after the central bank failed to expand on its plan to buy government debt as a means to reducing borrowing costs. The dollar gained against the yen and euro as the Fed resolved to do whatever is needed to revive the economy.
The U.S. House is set to approve Obama’s proposed $816 billion economic stimulus package. The plan is aimed at pulling the economy out of recession through a combination of tax cuts and $604 billion in spending.
Citigroup added 66 cents, or 19 percent, to $4.21, while Bank of America, the largest U.S. lender by assets, jumped 89 cents to $7.39. JPMorgan Chase & Co. climbed 10 percent to $27.66. Fifth Third Bancorp and State Street Corp. jumped more than 31 percent.
Financial companies in the S&P 500 rallied 13 percent collectively, with 79 of 81 companies advancing.
‘Relief Rally’
The bad-bank initiative may allow the government to rewrite some of the mortgages that underpin banks’ toxic debt, in the hope of stemming a crisis that has stripped more than 1.3 million Americans of their homes. The S&P 500 fell 38 percent last year, the most since the Great Depression, after the collapse of Lehman Brothers Holdings Inc. froze credit markets and more than $1 trillion in losses at financial firms eroded profits.
“You’re getting a big relief rally in the financials and that’s lifting the whole market,” said Michael Binger, Minneapolis-based fund manager at Thrivent Asset Management, which oversees about $70 billion. “If the bad assets can be taken out, banks will feel more comfortable in where their capital ratios will be. And if that’s the case, they’ll be more ready to lend and the credit market freeze will thaw.”
Wells Fargo & Co., the second-biggest U.S. home lender, rallied 31 percent to $21.19. The bank maintained its dividend and said it doesn’t need more federal aid as it reported its first quarterly loss since 2001 following its takeover of Wachovia Corp.
Earnings Watch
Yahoo, owner of the second-most-popular U.S. search engine, added 7.9 percent to $12.24. Excluding items such as stock-based compensation, earnings were about 18 cents a share, buoyed by job cuts and rising domestic sales. That beat the 17 cents estimated by analysts in a Bloomberg survey.
Carol Bartz, in her first earnings conference call as chief executive officer, said she would consider offers to buy the company’s assets, while adding that she didn’t come to Yahoo with the intention of selling it.
Profits decreased 41 percent for the 144 companies in the S&P 500 that have released fourth-quarter results since Jan. 12. Analysts now forecast a 32 percent drop in earnings for the fourth quarter after saying in March 2008 that net income would rise as much as 55 percent, according to Bloomberg data.
Sun Rallies
Sun Microsystems Inc. added 22 percent to $4.86. The world’s fourth-largest maker of server computers reported sales and earnings that topped analysts’ estimates after cutting jobs to cope with the recession.
Life insurers advanced after state insurance commissioners endorsed industry proposals to loosen capital requirements, paving the way for a potential vote on Jan. 29 to change reserving rules. MetLife Inc., the biggest U.S. life insurer, jumped 20 percent to $33.27.
Deutsche Bank, Germany’s largest, surged 22 percent to 22.15 euros in Frankfurt. Barclays, the U.K. lender that turned down government funding last year, rallied 19 percent to 107 pence in London.
There are some signs that the Fed’s action has begun to thaw credit markets. Sales of commercial paper totaled $1.69 trillion last week, up from October’s low of $1.45 trillion, though down from $1.76 trillion in the first week of the year.
The cost of borrowing dollars in London for three months rose to a two-week high this week as confidence in the banking system weakened. The London interbank offered rate, or Libor, for three-month loans slipped 1 basis point to 1.17 percent today, according to British Bankers’ Association data. Libor had surged to 4.82 percent on Oct. 10. The TED spread, the difference between what the U.S. government and companies pay for loans for three months, fell 5 basis points to 100 basis points. The spread was 464 basis points on Oct. 10.
“The Fed has already dipped their toe into quantitative easing, now they want to see how far the credit markets thaw before they do anything big,” said Stephen Wood, who helps manage $150 billion as a senior portfolio strategist at Russell Investments in New York.
Posts
No comments:
Post a Comment