US stocks rally on economic data, erasing S&P 500's 2011 loss

Last Updated: Sat, Dec 24, 2011 18:50 hrs

US stocks rallied this week, erasing the 2011 decline for the Standard & Poor’s 500 Index, as better-than-estimated economic data boosted confidence in the world's largest economy.

Bank of America Corp, General Electric Co and Walt Disney Co climbed more than 6.7 per cent to lead advances in the Dow Jones Industrial Average. Energy producers and financial companies led a surge by all 10 groups in the S&P 500, adding at least 4.8 per cent. Akamai Technologies Inc. soared 20 per cent after agreeing to buy startup competitor Cotendo Inc. Oracle Corp. tumbled 11 per cent after reporting quarterly earnings that missed analysts' estimates.

The S&P 500 climbed 3.7 per cent for the week to 1,265.33, including a 3 per cent surge on Dec. 20, the biggest one-day rally of the month. The Dow rose 427.61 points, or 3.6 per cent, to 12,294, extending its 2011 gain to 6.2 per cent. The Dow is at the highest level since July 27, when a political battle about the US debt ceiling led stocks on a seven-day decline.

"The fundamentals here in the US have been improving and I think investors were poised to want to see the equity prices move up," Mark Luschini, chief investment strategist at Philadelphia-based Janney Montgomery Scott LLC, which manages $54 billion, said in a telephone interview. The US economic data "puts us on a path to avert the recession going into 2012."

Erasing Losses
The S&P 500 erased its decline for 2011, rising 0.6 per cent for the year, after better-than-forecast economic reports sparked a four-day rally. Gauges on employment, consumer confidence and housing starts added to expectations that the US economy can weather Europe's debt woes. The S&P 500 slumped 1.2 per cent on Dec. 19 amid concern leaders weren't making enough progress in taming the euro-zone crisis.

Wall Street strategists forecast the S&P 500 will end the year at 1,278, or 1 per cent higher than its current level. With four trading days left in 2011, the benchmark index for US equities would need to climb about 0.2 per cent each day to reach their projection. On average, the S&P 500 gains 1 per cent in the last four days of the year, according to data dating back to 1928 compiled by Bloomberg.

The S&P 500 gained 3 per cent on Dec. 20 on a report showing builders broke ground in November on more houses in the US than at any time in the past 19 months. Meanwhile, concern about Europe's debt crisis eased as German business confidence unexpectedly grew and Spain sold more bills in an auction than the maximum target.

Jobless Claims
Stocks rose further during the week as the number of applications for unemployment benefits unexpectedly dropped last week to the lowest since April 2008. Confidence among US consumers rose more than forecast in December, to a six-month high, as Americans began wrapping up their holiday spending.

"I'm going to call this a sign of relief over Europe combined with incrementally positive economic news," Frederic Dickson, who helps oversee $28 billion as chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon, said in a telephone interview. "The positive news carried investors past the fact that there were a number of negative earnings surprises this week."

Investors also shifted their attention toward the US political scene. The US Congress passed a two-month payroll tax cut extension after House Republicans surrendered on whether to endorse the measure days before its scheduled Dec. 31 expiration.

'Domestic Threat'
"The most important thing that happened was the agreement in Washington to extend the payroll tax cuts and unemployment benefits," David Kelly, who helps oversee $394 billion as chief market strategist for JPMorgan Funds in New York, said in a telephone interview. "That removes probably the biggest domestic threat to the economy in 2012."

Gauges of energy and financial shares added 5.4 per cent and 4.9 per cent, respectively, for the biggest advances among 10 industry groups in the S&P 500. The Morgan Stanley Cyclical Index rallied 4.1 per cent amid economic optimism. GE jumped 7.2 per cent to $18.23, while Walt Disney increased 6.7 per cent to $37.70. Chevron Corp., the second-largest US energy company by market value, gained 6.6 per cent to $107.50. JPMorgan Chase & Co. rose 5.3 per cent to $33.57.

The European Central Bank awarded 489 billion euros ($645 billion) in loans to the region's banks in the latest attempt to tame the debt crisis, far more than the median forecast for 293 billion euros in a Bloomberg survey of economists.

"There's some expectation that US banks are benefiting from European banks pulling back, allowing them to increase deposits and market share," Luschini said.

Justice Department probe
Bank of America rose 7.7 per cent, the most in the Dow, to $5.60 after agreeing to a record $335 million settlement of a US Justice Department probe into fair-lending lapses at its Countrywide Financial Corp. mortgage unit.

Akamai Technologies, operator of a server network that lets businesses speed data delivery, rose the most in the S&P 500 after agreeing to buy Cotendo for about $268 million in cash. The stock advanced 20 per cent to $31.93.

Expedia Inc. gained 14 per cent to $30.04. The online travel agency completed the spinoff of TripAdvisor Inc.

Cintas Corp. rose 14 per cent, the most since October 2008, to $34.88. The provider of restroom supplies and entrance mats raised its fiscal year 2012 profit forecast to at least $2.16 a share, above the average analyst estimate of $2.03 a share.

Oracle declined 11 per cent, the most since October 2008, to $26.06. The world's second-largest software maker reported quarterly earnings that missed analysts' estimates as customers held off on purchasing database and applications software.

Business-software companies are taking longer to close deals as companies gird for slow economic growth in the US and the possibility of a recession in Europe next year, said Rick Sherlund, an analyst at Nomura Holdings Inc.

Red Hat Inc. tumbled 13 per cent, the biggest decline in the S&P 500, to $41.59. The largest seller of the open-source Linux operating system reported third-quarter billings and deferred revenue that missed some analysts' estimates.

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