U.S. Stocks Climb as Unemployment Rate Decreases

By Whitney Kisling

Aug. 7 (Bloomberg) — U.S. stocks jumped after the unemployment rate fell for the first time since April 2008, bolstering speculation that a recovering economy justifies the steepest rally in equities in seven decades. Commodities and the dollar also advanced, while Treasuries retreated.

American Express Co., Alcoa Inc. and Walt Disney Co. added at least 2.1 percent after the Labor Department said the nation lost 247,000 jobs last month, 78,000 fewer than economists projected, and the jobless rate fell to 9.4 percent from 9.5 percent. American International Group Inc. rallied 11 percent as its first profit since 2007 topped estimates. CBS Corp. and D.R. Horton Inc. climbed on analyst upgrades.

“The market has a laser focus on the economy and on jobs, so any improvement in that leads to an improvement in the stock market,” said David Katz, who oversees $1.1 billion as chief investment officer of Matrix Asset Advisors in New York. “The worst is behind for the economy, and we’re on the mend.”

The Standard & Poor’s 500 Index rallied the most in two weeks, adding 1.7 percent to a 10-month high of 1,013.63 at 11:29 a.m. in New York, poised for a fourth straight weekly advance. The Dow Jones Industrial Average climbed 143.97 points, or 1.6 percent, to 9,400.23.

The S&P 500 has rallied 50 percent since reaching a 12-year low on March 9, the steepest surge over the same number of days since the Great Depression. The market’s advance has restored almost $4 trillion in value to U.S. equities, according to data compiled by Bloomberg, after 2008 marked the worst year for stocks since the 1930s.

Earnings, Economic Data Surprise

In addition to today’s jobs data, reports this month showed better-than-estimated sales of cars and existing homes and a contraction in manufacturing that was smaller than economists forecast. The Conference Board’s index of leading economic indicators has risen three straight months.

While profits at S&P 500 companies are falling for a record eighth straight quarter, results have surpassed projections by an average of 10 percent in the current season. Per-share earnings have beaten estimates at three-quarters of the 446 companies in the S&P 500 that released second-quarter results since June 17, according to data compiled by Bloomberg.

“The economic news is getting less grim, and earnings estimates are ratcheting up,” said Michelle Clayman, chief investment officer at New Amsterdam Partners in New York, which manages $3 billion. “We’re now looking at earnings next year north of $70” a share for the S&P 500.

Profit Outlook

Companies in the S&P 500 will earn a combined $74.48 per share in 2010, according to forecasts compiled by Bloomberg as of yesterday. Overall profits are projected to rise 21 percent, led by an 85 percent increase at chemical and mining companies, a 54 percent gain at banks, brokers and insurers, and a 47 percent jump at energy producers, the data show.

The S&P 500 and the Dow have gained 12 percent and 7 percent, respectively, in 2009 as better-than-expected earnings and improving economic data suggest the worst recession since the 1930s may be subsiding and investors regain some confidence in U.S. equities. The S&P 500 and Dow are up about 2 percent over the past five days, both poised for the fourth straight week of increases.

AIG climbed 22 percent to $27.47 and has more than doubled over the past week. The insurer bailed out by the U.S. government reported second-quarter earnings per share of $2.57 on an adjusted basis, beating the $1.50 average analyst estimate. Shares of AIG climbed 63 percent on Aug. 5, and rose 2.4 percent yesterday before results were released.

Nvidia, D.R. Horton Rally

Nvidia Corp. added 5.2 percent to $13.80 after the second- biggest maker of graphics chips forecast sales of as much as $830.9 million in the third quarter, compared with an average analyst estimate of $757 million.

D.R. Horton, the largest U.S. homebuilder by sales, gained 7.3 percent to $13.46 as Goldman Sachs Group Inc. added the shares to its “conviction buy” list.

American Express, the best performing stock in the Dow this year with a 79 percent rally, climbed 5.9 percent to $33.17. Disney, the biggest media company in the world, rallied 3.7 percent to $26.31. Alcoa, the largest U.S. aluminum producer, rose 2.1 percent to $13.07.

All 10 industry groups in the S&P 500 advanced after the pace of job losses slowed more than forecast, the clearest sign yet that the worst economic contraction since the Great Depression is easing. Economists at Goldman Sachs Group Inc. and Deutsche Bank Securities Inc. yesterday changed their forecasts for a smaller drop in payrolls, saying the world’s largest economy and the labor market are showing some signs of improvements. Goldman Sachs lowered the forecast to 250,000, almost matching today’s report.

Oil, Dollar, Bonds

Crude oil fell from a five-week high as the dollar increased against the euro. The Dollar Index, a gauge of the currency against the six major trading partners, climbed 0.9 percent to 78.788, the biggest advance in more than a week. The price of the 10-year Treasury note slipped for a fifth consecutive day as investor risk aversion sank, with the yield up 12 basis points to 3.87 percent.

Chiquita Brands International Inc. rallied the most since May 1, adding 15 percent to $14.69, after the seller of bananas and other produce posted second-quarter earnings excluding some items of $2.08 a share, more than twice the average analyst estimate, according to Bloomberg data.

CBS, the only major broadcast network to gain viewers last season, surged the second-most in the S&P 500. The stock added 21 percent to $10.31 after earnings topped analysts’ estimates and Benchmark Co. raised the shares to “buy” from “hold,” saying the stock is “well positioned to benefit from the improving economic outlook.”

Leap, PMI Slide

Leap Wireless International Inc., the pay-as-you-go mobile phone company, slid 20 percent to $17.97 after posting quarterly results and revenue that missed analysts’ estimates as rivals increased competition with new products. Yesterday, telephone stocks slid the most of 10 industry groups in the S&P, dropping 1.2 percent after MetroPCS Communications Inc. reported disappointing results.

PMI Group Inc., the fourth-largest U.S. mortgage insurer, lost 13 percent to $3.08. The company posted an eighth straight quarterly loss, missing the average analyst estimate. Mortgage defaults cut into income and policy sales declined.

To contact the reporter on this story: Whitney Kisling in New York at wkisling@bloomberg.net.

Last Updated: August 7, 2009 12:46 EDT

taken from bloomberg.com 8-7-09