Tuesday, October 25, 2011

U.S. Stocks Rise Amid Takeovers, Caterpillar

U.S. stocks rose, following the longest weekly rally since February in the Standard & Poor’s 500 Index, amid takeover deals, as Caterpillar Inc. (CAT)’s earnings beat estimates and Europe made progress taming its debt crisis.

Gauges of technology, raw material and financial shares had the biggest gains in the S&P 500 among 10 groups, rising at least 1.9 percent. Caterpillar, the largest construction and mining-equipment maker, climbed 5.2 percent. RightNow Technologies Inc. (RNOW) surged 19 percent, while Healthspring Inc. (HS) soared 34 percent on acquisitions. Alcoa Inc. added 3 percent as commodities rose on signs of growth in China and Japan.

The S&P 500 rose 1.2 percent to 1,253.10 as of 11:31 a.m. New York time, paring its 2011 drop to 0.4 percent. The gauge has rallied for three straight weeks. The Dow Jones Industrial Average added 94.80 points, or 0.8 percent, to 11,903.59.

“It’s green lights here,” Philip Orlando, the New York- based chief equity market strategist at Federated Investors Inc., said in a phone interview. His firm oversees about $355 billion. “I’m optimistic that the market recognizes that Europe has developed a sense of urgency. Companies continue to report better-than-expected earnings. The fact that there’s an M&A cycle going on is telling us that the economy is growing, companies are flush with cash and stocks are cheap.”

The S&P 500 has risen 11 percent so far in October, following five months of losses. It rose from the threshold of a bear market early this month amid steps by European leaders to support banks and higher-than-estimated corporate earnings. The rebound brought the index above a price range where it had traded for more than two months.

Complete Blueprint
European leaders outlined plans to aid banks and ruled out tapping the European Central Bank’s balance sheet to boost the region’s rescue fund. Europe’s 13th crisis-management summit in 21 months also explored how to strengthen the International Monetary Fund’s role. The complete blueprint won’t come together until a summit in two days.

“Let’s hope this is decision time in Europe,” Richard Sichel, who oversees $1.6 billion as chief investment officer at Philadelphia Trust Co., said in a telephone interview. “Maybe this time we’ll actually hear something that we can say, ‘OK, now we know and let’s go from there.’ We need to put this crisis behind us and get back to looking at U.S. corporate earnings.”

The Morgan Stanley Cyclical Index of companies most-tied to the economy rallied 2.7 percent. The Dow Jones Transportation Average, a proxy for the economy, gained 2.1 percent. The KBW Bank Index added 2.7 percent.

Earnings Season
This week, 191 companies in the S&P 500 are scheduled to report quarterly results. Profit for all companies in the index climbed 16 percent during the third quarter, and will increase 18 percent to a record $99.32 a share for all of 2011, according to analyst estimates compiled by Bloomberg. About three quarters of the S&P 500 companies that reported results since Oct. 11 beat analysts’ projections, the data showed.

Caterpillar rallied 5.2 percent to $91.95. It said full- year profit will be $6.75 a share and sales will be at the top end of a previously forecast range of $56 billion to $58 billion. Revenue in 2012 will rise 10 to 20 percent, it said.

Other companies rose after Caterpillar reported earnings. Deere & Co. (DE), the world’s largest farm-equipment maker, added 3 percent to $74.40. Joy Global Inc. (JOYG), the maker of P&H and Joy mining equipment, increased 6.4 percent to $87.02.

United Parcel Service Inc. (UPS), the largest provider of package deliveries and a proxy for the economy, and Texas Instruments Inc. (TXN), the largest maker of analog chips, are among companies scheduled to report results this week.

‘Armageddon Scenario’
“We need to take the Armageddon scenario off the table,” Kevin Rendino, a money manager at New York-based BlackRock Inc., which oversees $3.3 trillion, said in an interview on Bloomberg Television’s “In the Loop” with Betty Liu. “Companies have done a really good job at managing expectations and then coming in OK because it is not as bad as we think it is.”

Some takeover deals also helped lift equities today.

RightNow Technologies surged 19 percent to $42.86. Oracle Corp. (ORCL), the world’s second-largest software maker, agreed to buy the company for $1.5 billion, gaining customer-service expertise to bolster a new Internet-based product.

Healthspring Inc. jumped 34 percent to $53.63. Cigna Corp. (CI) agreed to buy health maintenance organization Healthspring for $3.8 billion in cash to expand the U.S. insurer’s Medicare business.

Sara Lee Corp. (SLE) was unchanged at $17.77. J.M. Smucker Co., the maker of jams and Jif peanut butter, agreed to buy a majority of the company’s North American coffee and hot-beverage food-service business for about $400 million.

Alcoa Rallies
Alcoa, the largest U.S. aluminum producer, gained 3 percent to $10.54. Freeport-McMoRan Copper & Gold Inc. (FCX), the world’s largest publicly traded copper miner, advanced 6.9 percent to $39.11. The S&P GSCI Index of commodities added 1.9 percent.

China’s manufacturing may expand in October for the first time in four months, snapping the longest contraction since 2009, after a preliminary index of purchasing managers showed a rebound in new orders and output. The Chinese report, along with Japanese data today showing an increase in exports exceeding economists’ forecasts, signaled that Asia’s largest two economies are withstanding Europe’s sovereign debt crisis.

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