U.S. stocks rallied, extending a weekly advance for the Standard & Poor’s 500, after the leaders of France and Germany pledged a plan to support European banks and stem the region’s debt crisis in three weeks.
Bank of America Corp. (BAC) and Morgan Stanley (MS) added more than 4 percent. Freeport-McMoRan Copper & Gold Inc. (FCX) and ConocoPhillips (COP) climbed at least 2.8 percent as commodities rose. Caterpillar Inc. (CAT) and Ford Motor Co. (F) advanced at least 2.9 percent to pace gains among companies most-tied to the economy. Netflix Inc. (NFLX) jumped 6.9 percent after retreating from a decision to split its mail-order DVD service from its Internet streaming.
The S&P 500 added 2.1 percent to 1,180.21 at 9:40 a.m. New York time, following a 2.1 percent jump last week. The Dow Jones Industrial Average rose 217.97 points, or 2 percent, to 11,321.09.
“Europe took a very good step,” Peter Jankovskis, who helps manage about $2.2 billion at Oakbrook Investments in Lisle, Illinois, said in a telephone interview. “People talk about a Greek default, but the real driver is not what happens to Greece, but what happens to banks that hold its debt. As long as the bank system can survive, it shouldn’t be a big problem.”
The S&P 500 last week rose from the threshold of a bear market on optimism Europe will tame its debt crisis and after American economic data improved. The index was still down 15 percent from an almost three-year high in April through Oct. 7.
Global stocks rallied as German Chancellor Angela Merkel and French President Nicolas Sarkozy said yesterday they will deliver a plan to recapitalize European banks and address the Greek debt crisis by the Nov. 3 Group of 20 summit. Belgium agreed to buy the local consumer-lending unit of Dexia SA (DEXB), ending a 15-year cross-border experiment with France.
Banks Rally
Bank of America added 4.1 percent to $6.14, while Morgan Stanley rose 4 percent to $14.82. Freeport rallied 4 percent to $35.36. ConocoPhillips climbed 2.8 percent to $65.96. Caterpillar increased 3.2 percent to $77.91. Ford advanced 2.9 percent to $11.
Netflix jumped 6.9 percent to $125.34. “Consumers value the simplicity Netflix has always offered and we respect that,” co-founder and Chief Executive Officer Reed Hastings said today in an e-mailed statement. “There is a difference between moving quickly -- which Netflix has done very well for years -- and moving too fast, which is what we did in this case.”
Yahoo! Inc. climbed 3.6 percent to $16.03. Alibaba Group Holding Ltd. has talked with Singapore’s Temasek Holdings Pte about providing financing to buy the 40 percent stake in itself held by the U.S. Web portal, according to people familiar with the matter. Yahoo’s stake in Alibaba may be worth about $13 billion, using a valuation by the Singapore investor last month.
Earnings Season
Alcoa Inc. (AA), the biggest U.S. aluminum producer, will report earnings tomorrow after U.S. markets close, the first company of the Dow to do so for the third quarter. Earnings per share for the S&P 500, excluding financial companies, rose 14 percent in the third quarter, the smallest gain since the end of 2009, analysts’ estimates compiled by Bloomberg show.
With U.S. unemployment stuck above 9 percent, political squabbling about the government debt ceiling and a downgrade of the nation’s credit rating, confidence has been sapped, said Matt McCormick, who helps manage $4 billion with Bahl & Gaynor Inc. in Cincinnati.
“What started in August as a crisis of confidence hasn’t been resolved,” McCormick said. “This is a grind-it-out economy. We’re in a situation where it’s still going to take several years to rebuild our economic house.”
Sprint Tumbles
Sprint Nextel Corp. (S) tumbled 4.9 percent to $2.29 as at least six analysts cut their ratings after the carrier’s investor meeting, citing concerns that rising spending will hurt liquidity. “Management must demonstrate an ability to execute against its strategy before investors give the company the benefit of the doubt,” said Michael Nelson, an analyst at Mizuho Securities USA Inc. in New York.
Mizuho cut its rating to “neutral” from “buy.” JPMorgan Chase & Co., Deutsche Bank AG, Collins Stewart, Kaufman Bros. and Raymond James also cut their recommendations.
Investors are increasing bearish trades around the world by the most in at least five years, convinced the lowest valuations since 2009 will prove no barrier to losses after $11 trillion was erased from equities.
Borrowed shares, an indication of short selling, climbed to 11.6 percent of stock last month from 9.5 percent in July, the biggest increase since at least 2006, according to information compiled for Bloomberg by Data Explorers, a London-based research firm. Trades that profit when Chinese equities decline have reached a four-year high and bearish bets in the U.S. are the most since 2009, exchange data show.
Short Sellers
Slowing economies are spurring short sellers after indexes in 37 out of 45 major countries tumbled 20 percent, the common definition of a bear market. Bulls say declines have gone too far, with the MSCI All-Country World Index’s valuation at about half the 16-year average, just above the level three years ago, following the collapse of Lehman Brothers Holdings Inc. Losses since May exceed the combined gross domestic product of Brazil, Russia, India and China, data compiled by Bloomberg show.
“The Lehman collapse is way too clear in people’s minds,” said Henrik Drusebjerg, who helps oversee $230 billion as senior strategist at Nordea Bank AB in Copenhagen. “They don’t want to get burned as much again. They know either they get some protection or get out altogether.”
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