November 19th, 2012

S&P 500 Futures – U.S. stocks rose, giving the Standard & Poor’s 500 Index its biggest advance in two months, amid better-than-forecast housing data and as President Barack Obama expressed confidence on a budget agreement with Congress.

A measure of homebuilders in S&P indexes jumped 0.7 percent. Freeport-McMoRan Copper & Gold Inc. (FCX) and Newmont Mining Corp. (NEM) rallied more than 1 percent to pace gains in commodity producers amid Middle East tension. Cisco (CSCO) Systems Inc. increased 1.5 percent as it agreed to buy closely held Meraki Inc. for $1.2 billion. Lowe’s Cos. (L) surged 6.3 percent after the home- improvement retailer posted profit that beat estimates. Apple Inc. (AAPL) and Inc. (AMZN) added at least 1.5 percent.

The S&P 500 rose 1.6 percent to 1,381.02 at 2:05 p.m. in New York. The Dow Jones Industrial Average added 163.32 points, or 1.3 percent, to 12,751.63. Trading in S&P 500 companies was almost in line with the 30-day average at this time of day.

“This change and transition in taxation is much more important for equity allocations going forward than what people realize,” said Michael Shaoul, chairman of New York-based Marketfield Asset Management, which oversees $3.5 billion. He spoke in a phone interview. “The U.S. economy looks pretty good. Earnings are OK. As long as Congress doesn’t absolutely wreck it, it will be fine.”

Obama met with senior Democrats and Republicans on Nov. 16 for talks to avoid $607 billion of automatic tax increases and spending cuts that, if allowed to come into force, might push the country into a recession next year. The S&P 500 rose 0.5 percent on Nov. 16 as House Speaker John Boehner, a Republican, described the budget discussions as constructive and said he would accept increased government revenue coupled with spending cuts. Congress is now in recess for Thanksgiving until Nov. 26.


“I am confident we can get our fiscal situation dealt with,” Obama said yesterday at a news conference in Bangkok, where he began a three-nation Asian trip.

Sales of previously owned U.S. homes climbed in October, indicating gains in the real estate market are being sustained by cheap borrowing costs. Confidence among U.S. homebuilders unexpectedly climbed in November to a six-year high, propelled by the biggest jump in sales in a decade, adding to signs the real-estate market is improving.

Gold and oil rallied as a weaker dollar and concern about unrest in the Middle East increased demand for the commodities as alternative investments. Israel’s Defense Minister Ehud Barak said the army was prepared to invade the Gaza Strip for the first time in almost four years.

Commodity Shares

Freeport-McMoRan, the biggest publicly traded copper producer, added 3.5 percent to $38.09. Newmont Mining, the largest U.S. gold producer, added 1 percent to $46.56. Occidental Petroleum Corp. (OXY) rose 1.5 percent to $74.95.

Cisco rose 1.5 percent to $18.25. The world’s largest maker of computer-networking equipment agreed to pay $1.2 billion for Meraki, adding technology that helps businesses manage Wi-Fi networks remotely and expanding its lineup of products for mid- sized customers.

Lowe’s gained 6.3 percent to $33.99. The company, headed by Chief Executive Officer Robert Niblock, boosted sales of generators, chainsaws and cleaning supplies in the northeastern U.S. before Sandy struck on Oct. 29, destroying homes and leaving millions without power. Consumers also spent more as the U.S. housing market improved.

Home Depot Inc. (HD), the biggest U.S. home-improvement retailer, gained 1.4 percent to $62.98.

Most Valuable

Apple, the world’s most valuable company, gained 5.8 percent to $558.13. An analyst at Topeka Capital Markets said the shares are undervalued after retreating from a record high in September. Amazon, the largest online retailer, gained 1.5 percent to $228.51.

Tyson Foods Inc. (TSN) added 7.5 percent to $18.14. The largest U.S. meat processor declared a special dividend and posted fiscal fourth-quarter earnings and sales that exceeded analysts’ estimates after prices increased.

MetroPCS Communications Inc. (PCS) jumped 0.8 percent to $10.85 after saying it held deal talks with at least eight companies before agreeing to a merger with T-Mobile USA, raising the possibility that a counteroffer may surface.

The post-election rout in U.S. stocks has driven the S&P 500 down so far that it would have to advance 26 percent to reach the valuation of bull markets since John F. Kennedy was in the White House.

Investors have seen $806 billion erased from the value of American equities since Obama was re-elected Nov. 6 in the biggest decline since May. The combination of falling stocks and rising profits as the economy recovers has left the S&P 500’s price-earnings ratio below the ending level of eight of the nine bull markets since 1962 and beneath the average of any since Ronald Reagan was in power.

Bears vs Bulls

Bears say the 4.8 percent drop in the S&P 500 and valuations show investors are losing confidence that Congress and Obama will reach a budget compromise that would keep the recovery from stalling. Bulls, including the top strategists at six Wall Street firms, say that the declines are another reason to buy and that stock prices from Apple to Dollar Tree Inc. are bound to improve as earnings increase.

“The stock market looks cheap because people are way too pessimistic about what growth looks like for the next 10 years,” said Brian Jacobsen, who helps oversee $208 billion as chief strategist at Wells Fargo Advantage Funds and predicts the S&P 500 will rise 47 percent to 2,000 in 2014. “You can get big and rapid moves in the market when expectations are so low.”

- Rita Nazareth in New York and Tom Stoukas in Athens at Bloomberg.