U.S. Stocks Advance on Speculation Europe Will Act on Crisis

Financeroll - U.S. stocks rose, sending the Standard & Poor’s 500 Index higher for a second straight day, on speculation Europe will act to contain its debt crisis.

Monsanto Co. (MON), the world’s largest seed company, advanced 3.4 percent after forecasting higher-than-expected earnings. Chevron Corp. gained 2.2 percent, pacing gains in energy producers, as oil jumped after the U.S. Energy Department reported an unexpected decrease in inventories. Apple Inc. rose 0.7 percent, preventing the shares from completing its longest decline since 1998. Bank of America Corp. fell 2.4 percent, paring an earlier drop of as much as 4.3 percent.

The S&P 500 gained 1 percent to 1,135.24 at 1:50 p.m. New York time. The index jumped 2.3 percent yesterday after extending its plunge from an April peak to more than 20 percent, the threshold for a bear market. The Dow Jones Industrial Average rose 71.07 points, or 0.7 percent, to 10,879.78 today.

“Ring-fence, contain, firewall,” Peter Boockvar, an equity strategist at Miller Tabak & Co., wrote in a note today. “Three of the words that European authorities are finally understanding right now to prevent the debt crisis spreading to Italy and Spain as they prepare to ask private sector bondholders of Greek debt to price their bonds to market.”

Stocks reversed losses in the final hour of trading yesterday as a report in the Financial Times quoted Olli Rehn, European commissioner for economic affairs, as saying there is an “increasingly shared view” that the region needs a coordinated approach. Rehn “doesn’t speak of a concrete plan in hand,” his spokesman, Amadeu Altafaj, said today. “He speaks of an initiative, of discussions in progress.”
‘Bad Bank’

The International Monetary Fund said EU officials are working on plans to boost bank capital. France and Belgium said a “bad bank” will be set up to hold Dexia SA’s troubled assets. German Chancellor Angela Merkel said Europe’s rescue fund will only be used as a last resort to save banks and that investors may have to take deeper losses as part of a Greek rescue.

Investors also weighed economic reports that topped forecasts. Private employment expanded last month, while the Institute for Supply Management’s non-manufacturing index fell to 53. The median forecast of 75 economists surveyed by Bloomberg News was for a drop to 52.8. Orders picked up.
Jury ‘Still Out’

“The jury is still out,” Bruce Bittles, who helps oversee $85 billion as chief investment strategist at Milwaukee-based Robert W. Baird & Co., said in a telephone interview. “There’s no easy, painless solution out of the European situation. The market’s ability to continue to rally will depend on whether the economy will slip into recession or continue in slow growth.”

The Morgan Stanley Cyclical Index of companies most-tied to the economy rose 1.5 percent. The Dow Jones Transportation Average, a proxy for the economy, added 1.3 percent.

Monsanto advanced 3.4 percent to $65.11. The company forecast higher-than-forecast fiscal first-quarter profit as Latin American farmers increase demand for genetically modified crops. Profit will be 10 cents to 15 cents a share in the three months that began Sept. 1, St. Louis-based Monsanto said today in a statement. Five analysts surveyed by Bloomberg estimated earnings of 8 cents, on average.

Chevron, the second-largest U.S. oil company, gained 2.2 percent to $93.52. Halliburton Co. (HAL) added 3.1 percent to $31.44.
Analyst Changes

Some stocks moved on analysts’ recommendations. Walt Disney Co. (DIS), the largest theme-park operator, added 4 percent to $31.06 after being raised to “buy” from “hold” at Citigroup Inc. Apollo Group Inc. (APOL), the biggest U.S. for-profit college, gained 8.3 percent to $42.13 as Credit Suisse Group AG boosted its rating to “outperform” from “neutral.”

Yahoo! Inc. rose 3.5 percent to $14.97. The most-visited U.S. Web portal is getting ready to send financial information to potential buyers in the coming days, the Wall Street Journal reported, citing people familiar with the matter.

Apple, the world’s largest technology company, rose 0.7 percent to $375. The stock fell 7.9 percent over the last seven trading days.

Financial stocks rebounded from today’s lows. The KBW Bank Index of 24 stocks fell 1 percent, trimming an earlier decline of as much as 2.5 percent. Bank of America lost 2.4 percent to $5.62.
Larger Debt Loads

Nassim Nicholas Taleb, author of the best-selling book “The Black Swan,” said the current global market turmoil is worse than it was in 2008 because countries such as the U.S. have larger sovereign-debt loads. “Definitely, we face a bigger problem now and we will pay a higher price,” Taleb, who is also a professor at New York University, said today at a news conference in Kiev, referring to the turmoil during the last global financial crisis.

The U.S. stock market probably hit bottom yesterday and will rebound as investors refocus on fundamentals and earnings after weeks of distraction from the European debt crisis, Oppenheimer & Co.’s Brian Belski said.

The U.S. stock market is positioned for a rally after weeks of defensive positioning and indiscriminate selling that has led to record declines, Belski, chief investment strategist at Oppenheimer in New York, said on Bloomberg Television’s “Inside Track With Deirdre Bolton and Erik Schatzker.” Investors have become overly focused on the daily news on the the Greek sovereign debt crisis and have forgotten that earnings drive stock prices, not macroeconomic news, he said.

“Earnings will surprise to the upside — earnings estimates have been slashed too much,” Belski said. “The market’s going to get squeezed and we’re going to have a nice year-end rally.”

The S&P 500 closed under 1,100 for the first time in more than a year on Oct. 3, falling below the price range that held since August and putting the gauge within 1 percent of a bear market. It slipped as low as 1,074.77 yesterday before surging to 1,123.95. Analysts cut projections for profits next year by 2.6 percent to $110.76 a share after the S&P 500 tumbled 14 percent in the third quarter, Bloomberg Data show.[Blb]