S&P 500 Caps Longest Rally Since 2010 on Stimulus Bets

U.S. stocks rose, giving the Standard & Poor’s 500 Index its longest advance since December 2010, as optimism the Federal Reserve will act to stimulate the economy helped the market recover from an earlier decline.

J.C. Penney Co. (JCP) rose 5.9 percent as Chief Executive Officer Ron Johnson said his overhaul of the department-store chain is “on track.” Facebook Inc. added 3.8 percent as Chief Financial Officer David Ebersman is said to be meeting with investors in New York days before the lifting of a ban on stock sales by some of the company’s biggest shareholders. Broadcom Corp. (BRCM) gained 3 percent as the maker of chips that help mobile devices connect to the Internet was raised at Sanford C. Bernstein & Co.

The S&P 500 (SPX) rose 0.2 percent to 1,405.87, reversing a loss of as much as 0.5 percent and rising for a sixth day. It capped a fifth weekly advance, the longest streak since March. The Dow Jones Industrial Average added 42.76 points, or 0.3 percent, to 13,207.95. Volume for exchange-listed stocks in the U.S. was 5 billion shares, 24 percent below the three-month average.

“The weaker the data the higher the likelihood of stimulus,” said Alan Gayle, a senior strategist at RidgeWorth Capital Management in Richmond, Virginia, which oversees about $47 billion. “The weakness in China is likely to prompt a move there. While the Fed has been clear it will do anything to support growth, some people tend to think it’s inevitable.”

Stocks rebounded after the San Francisco Chronicle reported that Fed Bank of San Francisco President John Williams said the lack of progress in reducing the unemployment rate and the slow economic recovery have convinced him it’s time to move ahead with a third round of asset purchases. Earlier losses were driven by a worse-than-expected Chinese trade report which intensified concern that global economic growth is slowing.

‘Worldwide Slowdown’

“The market is looking at the worldwide slowdown,” said Nick Sargen, chief investment officer at Fort Washington Investment Advisors in Cincinnati, which oversees about $40 billion. “China is slowing down, Europe is in a recession. Everybody realizes that we’re on a tough situation. The question is -- can it get weaker or not?”

Bets on global central bank action to stimulate the economy have driven the S&P 500 up 10 percent since June 1. The index rose for five straight days through yesterday amid better-than- estimated corporate profits and data on the jobs market. About 72 percent of the S&P 500 companies which reported second- quarter results so far have beaten earnings estimates, according to data compiled by Bloomberg.

David Bianco, Deutsche Bank AG’s chief U.S. equity strategist, cut his 2012 earnings estimate for S&P 500 companies amid lower commodity prices, weak capital markets, a stronger dollar and a “midyear stall” in global manufacturing. His forecast was cut to $102 a share from $105.

Biggest Gains

Eight out of 10 groups in the S&P 500 rose today as phone, industrial and health-care shares had the biggest gains. The Chicago Board Options Exchange Volatility Index, which measures the cost of using options as insurance against S&P 500’s declines, slid 3.5 percent to 14.74, the lowest since March.

J.C. Penney rallied 5.9 percent to $23.40. Johnson, the former Apple Inc. retail chief who joined as CEO in November, is tweaking his pricing strategy after the previous plan confused customers by reducing sales events and coupons.

Facebook (FB) gained 3.8 percent to $21.81. Goldman Sachs Group Inc., Microsoft Corp. and other large investors that bought equity before the initial public offering will have freedom to sell their stakes starting Aug. 16. That’s after the lifting of limits imposed by underwriters on the sale of shares for a preset period after an IPO. A person with knowledge of the meetings declined to elaborate on the plans, which are private.

Broadcom Rallies

Broadcom rose 3 percent to $35.35. The company was raised to outperform at Sanford C. Bernstein.

Research In Motion Ltd. (RIM) jumped 6.3 percent to $8.29. The company’s enterprise-services unit has attracted the interest of International Business Machines Corp. (IBM), according to two people familiar with the situation.

Yahoo! Inc. (YHOO) lost 5.4 percent to $15.15. Chief Executive Officer Marissa Mayer has embarked on a strategy review that may result in a reversal of plans to restructure operations and return billions of dollars in cash to shareholders.

Monster Beverage Corp. (MNST) tumbled 11 percent to $54.27. The largest U.S. energy drink maker by volume sales said an unspecified attorney general is investigating the company’s flagship drink and ingredients.

Chesapeake Energy Corp. (CHK) slid 3.1 percent to $19.68. The second-largest U.S. natural-gas producer received a subpoena in June from the antitrust division of the U.S. Justice Department’s Midwest Field Office.

Cisco Drops

Cisco Systems Inc. (CSCO) retreated 0.9 percent to $17.54. The outlook for the biggest maker of computer-networking equipment may be worse than estimated, said Ryan Hutchinson, an analyst at Lazard Capital Markets LLC.

Big Lots Inc. (BIG) dropped 7 percent to $38.44. The discount retailer was downgraded to underweight from neutral at JPMorgan Chase & Co. by equity analyst Matthew Boss. The 18-month share- price estimate is $34.

Manchester United Plc (MANU) was unchanged at $14. The English soccer club with a record 19 championships raised $233.3 million in its U.S. initial public offering, less than first sought. The 134-year-old team and the Glazer family that bought it in 2005 sold 16.7 million shares for $14 each yesterday.

Investors put $356 billion into U.S. checking and savings accounts in the first six months of this year, almost double the $188 billion they deposited into bond mutual funds and exchanged-traded funds, according to TrimTabs Investment Research.

Net Deposits

Equity mutual funds and ETFs attracted $6 billion in net deposits, Sausalito, California-based TrimTabs said in a statement yesterday. Retail money-market funds lost $21.3 billion to withdrawals in the first half, according to the firm.

“People are risk-averse in a risky world and don’t trust the powers that be to manage the economy and the markets,” Charles Biderman, chief executive officer of TrimTabs, said in a telephone interview. “When that happens, you hunker down and put money away for better times.”

Some investors are avoiding equities even as stock markets have rallied this year. The MSCI All-Country World Index rose 7.9 percent and the S&P 500 increased 12 percent through yesterday. Europe’s crisis has sent some investors into the perceived safety of bonds.

Economic indicators may need to change for the better by October in order for U.S. stocks to sustain this year’s gains, according to Myles Zyblock, chief institutional strategist at RBC Capital Markets.

Most Affected

Shares of companies most affected by the pace of economic growth have been out of favor for months, according to data tracking the ratio of Morgan Stanley indexes for cyclical and consumer-product shares since 2009, when a bull market began.

“We see one of two likely scenarios” unfolding for stocks, Zyblock wrote two days ago in a report. The first is that the economic gauges will rebound during the next month or two to confirm the gains in stocks. The second is that share prices will decline as the indicators fall further.

The cyclical-consumer ratio, cited in the Toronto-based strategist’s report, rose only 0.2 percent for the year through yesterday as the S&P 500 gained 12 percent. The contrast became more pronounced in the past two months as the S&P 500 rebounded from its second-quarter low.

Rather than tracking the S&P 500, the cyclical-consumer ratio tended to move in lockstep with the Institute for Supply Management’s factory index, as the report showed. ISM readings for June and July were less than 50, pointing to a contraction in manufacturing.

Based on the backdrop, Zyblock wrote, higher stock prices can be attributed to “fast money investors who’ve been caught short, corporations with excess cash, and international equity investors running away from their home markets.”

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net

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