U.S. Stocks Gain on Obama Plan; Disney, Citigroup Shares Climb
By Lynn Thomasson
Jan. 6 (Bloomberg) -- U.S. stocks gained, recovering yesterday’s losses, on speculation President-elect Barack Obama’s $775 billion package of tax cuts and government spending will revive the economy.
Walt Disney Co., Hewlett-Packard Co. and Citigroup Inc. rose more than 3.4 percent on expectations consumer spending will be bolstered by Obama’s plan for tax breaks worth $500 to individuals. Ciena Corp. advanced 19 percent, the most since 2004, and led a rally in technology shares after Barclays Plc upgraded the maker of network equipment on growth prospects.
“It creates short-term benefits because consumers will spend more,” Ron Sweet, vice president of equity investments at USAA Investment Management Co., which oversees $100 billion in San Antonio, said of Obama’s plan. “There’s relief that the government isn’t just going to let everything fall apart.”
The Standard & Poor’s 500 Index rose 0.8 percent to 934.70, rebounding from yesterday’s 0.5 percent drop and climbing to the highest since Nov. 5. The index is up 3.5 percent in 2009 after sliding 38 percent in 2008, its worst yearly loss since 1937. The Dow Jones Industrial Average increased 62.21 points, or 0.7 percent, to 9,015.1. The Russell 2000 Index added 1.9 percent.
The S&P 500 has jumped 24 percent from an 11-year low on Nov. 20 amid optimism that Obama will boost the economy with the largest infrastructure investment since the 1950s. The gains also came after the Federal Reserve slashed interest rates to as low as zero. The European Central Bank also has scope to reduce borrowing costs further after the region’s inflation rate fell to the lowest in more than two years.
Disney, the largest theme-park operator, increased 3.5 percent to $24.31. Hewlett-Packard, the world’s biggest personal-computer maker, climbed 8.2 percent to $39.31 for the top gain in the Dow. Citigroup added 5.4 percent to $7.46.
Ciena, Dow Chemical Rally
Ciena advanced $1.32 to $8.40 and led a group of technology shares to a 3 percent gain, the most among 10 industries in the S&P 500. Barclays analysts lifted their recommendation on the stock to “overweight” from “equal weight” because it offers “healthy long term growth potential” at “modest valuation.”
Dow Chemical Co. rallied $1, or 6.6 percent, to $16.05. The largest U.S. chemical maker said it plans to seek more than $2.5 billion from Kuwait for canceling a joint venture agreement and will consider a new partner to invest in its basic-plastics business.
The advance in stocks came after Obama told House Speaker Nancy Pelosi he favors a price tag of about $775 billion for the U.S. economic stimulus plan, according to a Democratic aide.
‘Through the Pipe’
U.S. construction companies and investment banks will be among the prime beneficiaries of business tax cuts proposed by Obama, the Wall Street Journal said. Proposals being drafted by congressional Democrats and the incoming administration would allow companies to use tax losses to reduce taxable U.S. profit earned in the last five years, the newspaper said.
“It’s hard not to be positive given how much stimulus is coming through the pipe,” Jason Pride, research director for Haverford Trust Co., which oversees $5.5 billion in Haverford, Pennsylvania, told Bloomberg Television. “In the back half of ‘09, we do expect some form of recovery.”
Stocks rose even after reports showed the U.S. economy ended the year in a steep decline, with factory orders, home sales and service industries all contracting further.
The Institute for Supply Management’s index of service businesses was 40.6 for December, a higher-than-forecast reading that was still the second-worst on record. The National Association of Realtors index of pending home resales fell 4 percent in November, and the Commerce Department said orders at U.S. factories slumped for a fourth month.
Goldman’s ‘Milestones’
Investors should favor U.S. companies that generate most of their revenue at home rather than in Western Europe, Goldman Sachs Group Inc. said in a note. The brokerage has an “overweight” recommendation on the consumer-staples and health-care industries.
“The S&P 500 will begin to trade meaningfully higher once we pass four critical milestones,” Goldman Sach’s New York- based strategist David Kostin wrote. “Passage of a fiscal stimulus plan in the first quarter, improved access to credit for corporations and consumers, home price stabilization and declines in financial writedowns.”
The Chicago Board Options Exchange Volatility Index slid for a fifth day, losing 1.3 percent to 38.56, its lowest level since Sept. 26. The gauge, which measures the cost of using options as insurance against declines in the S&P 500, has lost more than half its value since Nov. 20 as stocks surged.
Credit Spreads
Fed officials are focused on driving down the spreads between Treasury yields and consumer and corporate loans in order to reinvigorate credit markets.
Yields on Fannie Mae, Freddie Mac and Ginnie Mae mortgage securities tumbled to the lowest since October 2007 relative to government notes after the Fed began a $500 billion program to buy the bonds. The difference between yields on Washington-based Fannie’s current-coupon 30-year fixed-rate mortgage bonds and 10-year Treasuries fell about 26 basis points to 131 basis points as of 4 p.m. in New York, according to data compiled by Bloomberg.
Real estate companies in the S&P 500 jumped 5.8 percent collectively, led by CB Richard Ellis Group Inc. and Developers Diversified Realty Corp. A group of five S&P 500 homebuilders climbed 5.1 percent for a fifth straight daily advance.
Byron Wien, the strategist who correctly predicted a recession would drive stocks lower last year, said the market hit a bottom last quarter and government efforts to bolster the economy should help spur a 33 percent rebound in the S&P 500 in 2009.
‘Very Right’
“Everybody compares this period to the 1930s,” said Wien, chief investment strategist at Westport, Connecticut-based hedge fund firm Pequot Capital Management Inc. and former strategist at Morgan Stanley. “But in the 1930s the policy responses were almost invariably wrong. And here the policy responses, at least as they appear, look like they’re very right to me.”
Still, the rally since the market’s November low hasn’t brought some of the most successful investors back into equities. Paolo Pellegrini, the former Paulson & Co. hedge-fund manager who helped make more than $3 billion with bets on a U.S. housing crash, said he will avoid stocks in 2009 after the S&P 500’s 38 percent loss last year.
ICE, Nucor Slump
Intercontinental Exchange Inc. fell the most in the S&P 500, losing 14 percent to $62.59. The second-largest U.S. futures market was downgraded to “neutral” from “buy” at UBS AG and Goldman Sachs Group Inc. after reporting weaker-than- expected volumes for the fourth quarter.
Nucor Corp. slid 3.7 percent to $45.57. UBS AG lowered its recommendation on the largest U.S.-based steel producer to “neutral” from “buy” and predicted falling demand and prices for the metal.
Alcoa Inc. may be active tomorrow. The world’s largest aluminum producer said it will cut capital expenditures in half this year, suspend share buybacks and reduce its headcount by 13,500, about 13 percent of its workforce. The shares gained 2.2 percent to $12.12 in the regular session and were halted in extended trading.
Europe’s Dow Jones Stoxx 600 Index rose for a sixth day, adding 2 percent as forecasts from U.K. retailers reassured investors.
Last Updated: January 6, 2009 16:37 EST |
