U.S. stocks advanced after six straight days of declines left the Standard & Poor’s 500 Index valued at the cheapest relative to earnings since 1986 and retailers reported profit that topped analysts’ estimates. Home Depot Inc., Macy’s Inc. and Nordstrom Inc. climbed more than 6 percent. Bank of America Corp. and Citigroup Inc. rose at least 4 percent, helping send financials to their first advance in eight days, after Federal Deposit Insurance Corp. Chairman Sheila Bair said large U.S. banks have adequate regulatory capital and it would be “surprising” if the government was forced to nationalize them. All 10 industries in the S&P 500 advanced as the benchmark for U.S. stocks rebounded from a 12-year low. “Given that we’ve had a significant selloff, it’s usually followed by a recovery,” said Alan Gayle, a Richmond, Virginia- based senior investment strategist at RidgeWorth Capital Management, which oversees $60 billion. “We still have a lot more work to do to establish a solid base for the equity market.” The S&P 500 added 1.4 percent to 753.96 at 11:29 a.m. in New York. The Dow Jones Industrial Average increased 81.88 points, 1.2 percent, to 7,196.66, while the Russell 2000 Index climbed 1.8 percent. The S&P 500 traded for 12.9 times company profits from the past 10 years as of yesterday’s close, the cheapest valuation since 1986, according to data compiled by Yale University professor Robert Shiller. He uses a decade of earnings to smooth out short-term fluctuations. ‘Trading Buy’ The benchmark index for U.S. equities yesterday fell to 743.33, the lowest level since April 1997. JPMorgan strategist Thomas Lee issued a “trading buy” recommendation on the index, with a “short-term” target of 800. Stocks in Asia and Europe dropped today as the deepening recession erodes earnings. The MSCI Asia Pacific Index slid 1.9 percent, while the Dow Jones Stoxx 600 Index fell 1.6 percent. Home Depot climbed $1.56 to $20.27 as the largest home- improvement retailer reported break-even earnings per share from continuing operations. Profit excluding items was 19 cents, compared with the consensus estimate of 15 cents. Macy’s added 46 cents to $7.86 on profit that fell less than analysts estimated as the second-biggest U.S. department- store chain reined in inventories and markdowns. Nordstrom increased 15 percent to $12.99 after earnings topped estimates and the department-store chain forecast a profit for the current year. JPMorgan’s Dividend JPMorgan Chase & Co. rose 14 cents to $19.65 after the second-biggest U.S. bank said the first quarter will be “solidly profitable.” The bank slashed its dividend by 87 percent to 5 cents and said it plans to maintain that level “for the time being.” The move aims to protect the bank even if the economy deteriorates ‘significantly,” Chief Executive Officer Jamie Dimon said in a statement. Financial stocks in the S&P 500 collectively rose 2 percent, ending a seven-day losing streak that wiped 23 percent from the industry group. The group also gained after Federal Deposit Insurance Corp. Chairman Sheila Bair told the CBS Early Show that all large banks are “fine for now” and have adequate capital. The Federal Reserve is urging Wells Fargo & Co. and dozens of banks getting bailout funds to put the money into new loans or bolster loss reserves, not to pay dividends for shareholders, two people familiar with the matter said. Citigroup Inc. gained for a second day, adding as much as 9.8 percent to $2.35. Bank of America Corp. increased 4.4 percent to $4.08. Both stocks tumbled more than 31 percent last week on speculation the government would seize the lenders and wipe out shareholders. Stress Tests Officials will start evaluating about 20 of the nation’s largest banks tomorrow to see if they have enough capital to withstand the deepening recession. Institutions that aren’t able to raise needed capital privately will get taxpayer money, regulators said yesterday. Stocks maintained gains even after reports showed the housing slump and consumer confidence worsened and Federal Reserve Chairman Ben S. Bernanke told Congress a full economic recovery may take more than three years. “We’re now in a phase where the market can stabilize and attempt a rally,” said Liam Dalton, who oversees about $1.1 billion as the New York-based chief executive officer of Axiom Capital Management. “In the near term, it’s a bit oversold.” Economy Watch Home prices in 20 U.S. cities declined 18.5 percent in December from a year earlier, the fastest drop on record, as foreclosures climbed and sales sank. The decrease in the S&P/Case-Shiller index was more than forecast and followed an 18.2 percent drop in November. The Conference Board’s consumer confidence index declined more than forecast to 25 this month, the lowest level since data began in 1967, from a January reading of 37.4. Bernanke said the U.S. economy is in a “severe” contraction, and warned the recession may last into 2010 unless policy makers can stabilize the financial system. January forecasts by Fed officials suggest that “a full recovery of the economy from the current recession is likely to take more than two or three years,” Bernanke told lawmakers. “If actions taken by the administration, the Congress, and the Federal Reserve are successful in restoring some measure of financial stability -- and only if that is the case, in my view -there is a reasonable prospect that the current recession will end in 2009 and that 2010 will be a year of recovery,” Bernanke said in remarks to the Senate Banking Committee in Washington. Developers Diversified Jumps Developers Diversified Realty Corp. rallied 27 percent to $3.18 for the S&P 500’s biggest gain. The shopping-center owner, whose shares plunged 94 percent in the past 12 months, agreed to sell 30 million shares to German mall operator Alexander Otto and members of his family, as well as warrants for 10 million more shares. Elliott Wave International Inc.’s Robert Prechter, who advised selling U.S. stocks short in July 2007, said investors should end those bets now following the recent market sell-off. Prechter, chief executive of the market forecasting firm, wrote in a note posted yesterday that a rebound in stocks could be “sharp and scary for anyone who is short.” “We went too low, too fast,” said Claudio Meiger, who manages about $100 million at Basel, Switzerland-based CIC Schweiz AG. “There is still a lot of uncertainty. Obama is doing everything he can and the market is showing little reaction. We need to hear something concrete from him today.” American International Group Inc. declined 25 percent to 40 cents. The insurer bailed out by the U.S. may restructure its $150 billion rescue package for a second time in four months as the recession and slumping stock markets cut the value of its assets. Separately, AIG received bids from MetLife Inc. and Axa SA for a life-insurance unit spanning more than 50 countries, a sale that may mark the biggest step yet in the company’s dismantling, said three people familiar with the situation. Peter Stack, a spokesman for New York-based MetLife, declined to comment, as did Christina Pretto of New York-based AIG and Emmanuel Touzeau of Paris-based Axa.

Source