U.S. Stocks Surge as Dow, S&P 500 Have Biggest Gains in Almost 15 Years
By Danielle Sessa
New York, July 24 (Bloomberg) -- U.S. stocks had their biggest rally in almost 15 years.
The surge followed assurances from J.P. Morgan Chase & Co., accused by congressmen of helping Enron Corp. hide debt, that its finances were sound. Citigroup Inc. and J.P. Morgan, the two largest U.S. banks, led the advance.
Earlier declines that had sent the Standard & Poor's 500 Index to its lowest level in more than five years made stocks relatively inexpensive, some investors said.
``Anyone who buys now is going to be surprised at how well they've done a year from now,'' said Stanley Nabi, who helps oversee $57 billion at Credit Suisse Asset Management. The Credit Suisse Large Cap Value Fund that he helps run outperformed the S&P 500 the past five years.
The Dow Jones Industrial Average rose 488.95, or 6.4 percent, to 8191.29. That was its second-biggest point gain. The S&P 500 jumped 45.73, or 5.7 percent, to 843.43. Both had their largest percentage advance since rebounding from the crash in October 1987. The Nasdaq Composite Index added 61.18, or 5 percent, to 1290.23.
The New York Stock Exchange had its busiest day, with trading exceeding 2.7 billion shares, according to preliminary figures. More than four stocks rose for every three that fell on the Big Board and the Nasdaq Stock Market.
``There is a buying panic,'' said George Mairs, who manages $700 million at Mairs & Power Inc. in St. Paul, Minnesota. ``People are jumping to get in because they don't want to miss the bottom. No one is prepared to say the bear market has ended, but the magnitude of this rally is very impressive.''
Rebound
As the day began, stocks extended a retreat that had produced the biggest two-week decline in the S&P 500 since the crash. They reversed course after Congress agreed on legislation to crack down on corporate fraud.
The bill, along with the arrest of Adelphia Communications Corp.'s founder, two sons and two other former executives on securities-fraud charges, may shore up investor confidence that has been battered by disclosures of accounting lapses and executives' misconduct.
``If you can remove your mind from the corporate bashing of the day and focus on fundamentals, stocks are cheap,'' said Robert Phillips, who helps oversee $800 million at Walnut Asset Management in Philadelphia. Earnings are likely to rise, interest rates are at 40-year lows and there is no inflation, he said.
Credit Suisse's Nabi said stocks would be fairly valued if the S&P 500 traded at about 22 times the $52 in per-share earnings he expects for the coming 12 months. The index now trades at about 16 times that profit estimate.
``Valuations are as low as I have seen them, given the level of interest rates, since the early 1980s,'' he said.
Banks Rally
Financial shares, which account for one-fifth of the S&P 500, added the most to the benchmark index.
J.P. Morgan advanced $3.22 to $23.30. Shares of the second- largest U.S. bank tumbled 18 percent yesterday and dropped below the value of its net assets.
Chief Executive Officer William Harrison said he and Vice Chairman Marc Shapiro were buying stock in the bank because the share price was ``very, very depressed.'' Even after today's gain, J.P. Morgan is down 31 percent this month.
Citigroup rose $2.59 to $29.59, rebounding from a 16 percent drop yesterday. The biggest financial-services company has lost 24 percent this month.
The two banks were the focus yesterday of Senate hearings. They disputed charges that they helped the bankrupt energy trader Enron hide debt.
``We trust them,'' said Stephen Berman, a financial-services analyst who helps Stein Roe Investment Counsel manage $9 billion, including J.P. Morgan shares. ``I do not think there is any evidence that argues against that what they did was a normal business practice that was perfectly legal and showed no intent to deceive or defraud.''
Exxon Mobil Gains
Exxon Mobil Corp. rose $3.01 to $33.93. Banc of America Securities Inc. analyst Tyler Dann wrote in a note to clients. He raised the largest publicly traded oil company to ``strong buy'' from ``buy,'' saying the stock is fairly valued at $38.
PepsiCo Inc. advanced $3.58 to $39.55. Michael Branca, a Lehman Brothers Inc. analyst, said the soft-drink and snack-food maker is trading at a discount to its peers and will earnings at its Gatorade and Tropicana product lines will improve. He raised his rating to ``strong buy'' from ``buy.''
Merck & Co. gained $3.55 to $42.60. The drugmaker said it will buy back as much as an additional $10 billion of its shares and plans to increase its quarterly dividend by 1 cent a share.
HCA Inc. jumped $4.75 to $45.17. The largest hospital chain reported second-quarter earnings, excluding certain costs, that topped analysts' estimates. Revenue per inpatient admission rose 9.5 percent in the quarter as HCA raised rates.
Martha Stewart Living Omnimedia Inc. tumbled 95 cents to $9.05. The media and housewares company said it will miss profit estimates as an insider-trading probe involving its founder is scaring off advertisers. A congressional panel is investigating Martha Stewart's sales of ImClone Systems Inc. shares.
Anthem Inc. jumped $5.26 to $63.01. The health insurer replaced Conseco Inc. in the S&P 500 after the close of today's trading. Conseco dropped 35 cents to 89 cents a share. Membership in a major index usually boosts a company's stock price as money managers who seek to track the index's performance buy the shares.
Fund Outflows
Today's gains may be short-lived, some money managers said.
Mutual fund outflows rose to $32.6 billion in the two weeks ended July 22 and $47.24 billion for this month alone, according to TrimTabs.com Investment Research Inc. That's more than the withdrawals last September after the terrorist attacks.
``I wouldn't count on any sustained stocks recovery until we see money coming back into the market,'' said David Guy, who helps manage $23 billion at J. & W. Seligman & Co. in New York. Guy said he's been buying casino stocks including Mandalay Resort Group and Harrah's Entertainment.
The Russell 2000 Index of smaller stocks advanced 14.57, or 4 percent, to 378.56. The Wilshire 5000 Total Market Index, the broadest measure of U.S. shares, surged 407.40, or 5.4 percent, to 8009.24, adding $469 billion in market value.
Adelphia Communications Corp. (ADELQ)
Anthem Inc. (ATH)
Citigroup Inc. (C)
Conseco Inc. (CNC)
Exxon Mobil Corp. (XOM)
HCA Inc. (HCA)
J.P. Morgan Chase & Co. (JPM)
Martha Stewart Living Omnimedia Inc. (MSO)
Merck & Co. (MRK)
PepsiCo Inc. (PEP)
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Best regards, J.T. |
