Monday, August 29, 2011

U.S. Stock-Index Futures Advance After Irene

U.S. stock futures rose, indicating the Standard & Poor’s 500 Index will extend its first weekly gain since July, amid optimism the economy will expand.

Bank of America Corp. (BAC) and JPMorgan Chase & Co. (JPM) rallied at least 1.6 percent, following gains in European banks. Travelers Cos. rose 2.6 percent as Hurricane Irene’s estimated cost to insurers declined as the storm lost strength en route to New York. Pfizer Inc. (PFE) added 3.2 percent after the world’s largest drugmaker won U.S. approval to sell a drug to treat lung cancer.

S&P 500 futures expiring in September rose 1.2 percent to 1,188.70 at 9 a.m. in New York. The index climbed 4.7 percent last week, the biggest increase in almost two months, as Federal Reserve Chairman Ben S. Bernanke indicated the economy isn’t weak enough to warrant immediate stimulus via a third round of so-called quantitative easing, or QE3. Dow Jones Industrial Average futures gained 110 points, or 1 percent, to 11,389.

“There’s been a sort of positive interpretation of what’s been said or not said about the absence of new measures such as QE3,” Yves Maillot, head of investments at Robeco Gestions in Paris, which oversees $6.78 billion, said in a telephone interview. “The market wanted to react well. We’re still in this momentum of rebound.”

Equities climbed after Americans’ spending increased more than economists forecast while incomes grew at the projected pace. S&P 500 futures also advanced after two Greek banks, EFG Eurobank Ergasias SA and Alpha Bank SA, discussed merging to bolster their assets. Equities in Greece rallied the most in more than 20 years.

On The Edge
Investors are paying less for equities than they have during every recession since Ronald Reagan was president amid growing concern that the economy is on the edge of another recession. The S&P 500 has lost 13 percent in the past five weeks, sending its price-earnings ratio down to 12.9. That’s 3.5 percent less than the average multiple during the 10 contractions since 1949 and a level last reached in 1982, according to data compiled by Bloomberg.

Stocks dropped and then rebounded on Aug. 26 after Bernanke’s speech in Jackson Hole, Wyoming, in which he said the central bank still has tools to stimulate the economy without signaling he will use them. He echoed comments from dissenting members of the Federal Open Market Committee who said data aren’t pointing to a recession.

Consumer spending climbed more than forecast in July as Americans dipped into savings to buy cars and cool their homes, showing the biggest part of the economy is holding up. Purchases rose 0.8 percent, the biggest gain since February, after a 0.1 percent decline the prior month, Commerce Department figures showed today in Washington. The median estimate of 74 economists surveyed by Bloomberg News called for a 0.5 percent increase.

Banks Rally
Bank of America gained 3.1 percent to $8, while JPMorgan rose 1.6 percent to $36.79.

Travelers added 2.6 percent to $49.55. Hurricane Irene’s estimated cost to insurers fell to about $2.6 billion, according to Kinetic Analysis Corp., a firm that predicts the effects of disasters. That compares with a projection last week from the Silver Spring, Maryland-based company of as much as $14 billion when Irene was forecast to make landfall in New York as a Category 2 hurricane. Total economic losses, including those that aren’t insured, may be about $7 billion.

Pfizer rose 3.2 percent to $18.80. The treatment, crizotinib, is the leading candidate among more than 20 tumor- fighting medicines the company is developing to help replace sales expected to be lost to generic drugs.

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