BLBG: U.S. Stocks Gain, Led by Financials as Lincoln National Rallies
U.S. stocks rose, extending the biggest monthly gain since 2002, as Lincoln National Corp. rallied after saying it will pay back debt on time and a gauge of corporate borrowing costs fell to the lowest in a month.
Lincoln National, the insurer seeking $3 billion from the government, jumped 17 percent after saying it will repay $500 million on April 6. Citigroup Inc. and Bank of America Corp. led financial companies to the biggest advance among 10 industry groups. Alcoa Inc., the largest U.S. aluminum producer, rose as much as 11 percent on takeover speculation.
The Standard & Poor’s 500 Index added 1.2 percent to 797.24 at 11:41 a.m. in New York, rebounding from the biggest drop in three weeks. The Dow Jones Industrial Average increased 98.05 points, or 1.3 percent, to 7,620.07. The MSCI World Index of 23 developed nations rose 1.5 percent.
“The case for the financials to lead us out is even stronger than it has been historically,” Deutsche Bank AG strategist Binky Chadha told Bloomberg Television. “Whether or not we get that recovery hinges on the Treasury’s initiatives.”
The S&P 500 is up 8.5 percent in March, trimming its quarterly decline to less than 12 percent, after Citigroup, Bank of America and JPMorgan Chase & Co. said they made money in the first two months of 2009 and U.S. Treasury Secretary Timothy Geithner unveiled plans to rid financial firms of toxic assets.
TED Spread Narrows
The so-called TED spread, a benchmark for corporate borrowing costs that measures the difference between the three- month London Interbank Offered Rate and three-month Treasury bill yields, narrowed to 0.99 percentage point today, the lowest since Feb. 26.
Stocks rose today even after home prices in 20 U.S. cities fell the most on record and gauges of consumer confidence and business activity were weaker than economist forecasts. The S&P/Case-Shiller home price index fell 19 percent in January from a year earlier to the lowest since September 2003.
The Conference Board’s consumer confidence index increased less than expected to 26 in March from a record low 25.3 in February. The Institute for Supply Management-Chicago Inc.’s business barometer fell for a sixth straight month to 31.4, the lowest since July 1980. Readings below 50 signal contraction.
Lincoln National added $1.06 percent to $7.47. The Pennsylvania life insurance company’s shares slumped 38 percent yesterday after it withdrew an application to sell debt with a federal guarantee.
Financial companies, still the worst-performing group in the S&P 500 this quarter with a drop of more than 30 percent, led the gain today, climbing 4.9 percent as a group.
Financials Lead Rebound
Financials historically have led stock-market recoveries, and are likely to do so again because any recovery is contingent upon the financial crisis ending, Deutsche Bank’s Chadha said.
The U.S. government and the Federal Reserve have spent, lent or guaranteed $12.8 trillion, an amount that approaches the value of everything produced in the country last year, to stem the longest recession since the 1930s.
Citigroup, which has received about $45 billion in government rescue funds, added 8.7 percent to $2.51. Bank of America, the largest U.S. bank by assets, advanced 8.8 percent to $6.56. Citigroup yesterday dropped 12 percent, while Bank of America lost 18 percent after Treasury Secretary Timothy Geithner said on the ABC News program “This Week” that some banks are going to need “large amounts of assistance.”
Both stocks are up more than 60 percent in March.
Fund managers who report holdings as of quarter-end may opt to buy shares of the best-performing companies during the S&P 500’s rebound from a 12-year low on March 9, said Craig Peckham, equity trading strategist at Jefferies & Co. in New York.
‘Window Dressing’
“Window dressing may have more of an impact on trading today than in the past because we’re coming off a decent rally,” Peckham said. “There may be pressure on portfolio managers to show ownership of” the stocks that have gained the most.
Alcoa climbed 9.8 percent to $7.35, the biggest gain in the Dow average, on speculation it will be acquired by BHP Billiton Ltd. “Alcoa fits in all the BHP boxes in my view,” Charlie Aitken, executive director at Southern Cross Equities Ltd., wrote in a report today. Alcoa’s assets “appear grossly cheap versus any replacement value or mid cycle earnings valuations,” he added.
The largest U.S. aluminum company fell 14 percent yesterday after Aluminum Corp. of China posted a 99.9 percent decline in 2008 profit and forecast a loss in the first quarter on lower prices.
‘Reasonable Valuations’
“There are some very high quality companies out there available at reasonable valuations,” said Michael Shinnick, a money manager in South Bend, Indiana for Wasatch Advisors Inc., which manages $4.5 billion. “There’s been a re-rating of the entire market that’s taken down the good, the average and the bad.”
General Motors Corp. fell the most in the Dow, tumbling 8.9 percent to $2.46. The cost to protect against a default by the largest U.S. automaker rose for a second day on concern the company will be forced into a structured bankruptcy if it can’t slash its debt.
GM slumped 25 percent yesterday after President Barack Obama gave the company and Chrysler LLC deadlines to “fundamentally restructure” or lose the government aid that has kept them alive.
Lennar Corp., the fourth-largest U.S. homebuilder, slid 10 percent to $7.84 after posting a wider first-quarter loss as the housing slump cut orders by 28 percent and forced the company to write down the value of land.
U.S. stocks will have a “more constructive” second half as economic data in the world’s largest economy improves, Thomas Lee, JPMorgan’s chief equity strategist, wrote in a report dated yesterday. Lee advised investors to add to holdings in industrial companies and trim positions in pharmaceuticals.
