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U.S. Stocks Gain on German Confidence Amid Budget Talks

By Whitney Kisling and Rita Nazareth
December 11, 2012 4:31 PM EST 20 Comments
Equities trimmed gains as Senate Majority Leader Harry Reid told reporters that Republicans were holding middle-class tax cuts “hostage” and have offered no specifics on what they want in budget negotiations.
Photographer: Andrew Harrer/Bloomberg
Equities trimmed gains as Senate Majority Leader Harry Reid told reporters that Republicans were holding middle-class tax cuts “hostage” and have offered no specifics on what they want in budget negotiations.

U.S. stocks rose, erasing losses since Election Day for the Dow Jones Industrial Average, after German investor confidence climbed and traders awaited progress on federal budget negotiations in Washington.

American International Group Inc. added 5.7 percent as the government sells its remaining stake. Apple Inc. (AAPL) rose 2.2 percent as Morgan Stanley reiterated its overweight rating for the world’s most valuable company. Delta Air Lines Inc. (DAL) gained 5.1 percent after agreeing to buy a 49 percent stake in Virgin Atlantic Airways Ltd. from Singapore Airlines Ltd.

The Standard & Poor’s 500 Index advanced 0.7 percent to 1,427.84 at 4 p.m. in New York, after rallying as much as 1.1 percent earlier. The Dow increased 78.56 points, or 0.6 percent, to 13,248.44, its highest level since Oct. 22. About 6.4 billion shares changed hands on U.S. exchanges, 3.2 percent above the three-month average.

“There’s speculation of progress on a deal, given that the two sides are still meeting and talking” about how to resolve the so-called fiscal cliff, Walter Todd, who oversees about $940 million as chief investment officer of Greenwood Capital Associates LLC in Greenwood, South Carolina, said in a phone interview. “Right now, people want to see a deal, period. There will be quite a relief rally if one’s announced.”

The S&P 500 is less than 0.1 percent from erasing its loss since the Nov. 6 election as President Barack Obama seeks a deal with Republican lawmakers to avoid more than $600 billion of automatic tax increases and spending cuts starting next year. House Speaker John Boehner said today he is still “hopeful” the parties can reach a budget agreement before the end of the year.

No Specifics

Equities trimmed gains today as Senate Majority Leader Harry Reid said Republicans have offered no specifics on what they want in negotiations. “It’s going to be extremely difficult to get it done before Christmas, but it could be done,” Reid, a Democrat from Nevada, told reporters.

The S&P 500 has advanced 0.8 percent so far this month to give the benchmark index a 14 percent rally for 2012. Its average gain for December is 1.5 percent, the highest of any month except July, according to data dating back to 1928 compiled by Bloomberg. The stock market may also get a year-end boost from a so-called Santa Claus rally -- an upswing in the last five days of the year and the first two in January, according to the Stock Trader’s Almanac.

German Confidence

Stocks rose today as German investor confidence jumped in December on speculation Europe’s largest economy will gather momentum next year. The trade deficit in the U.S. widened in October as the biggest slump in exports in almost four years outweighed a drop in imports.

Federal Reserve policy makers began a two-day meeting today that will culminate in updated projections on economic growth, unemployment and inflation. Fed officials are considering whether to supplement $40 billion a month of mortgage-bond purchases with Treasury purchases when their Operation Twist program expires at the end of the month.

BlackRock Inc.’s Laurence D. Fink, who heads the world’s largest asset manager, said today he doesn’t expect many U.S. companies to default, so investors shouldn’t be afraid to take risks in bonds. He said long-term investors must be in equities.

“Corporations are in fabulous shape,” Fink said in an interview with Erik Schatzker and Stephanie Ruhle on Bloomberg Television’s Market Makers. “I would say if you’re not in equities now, you need to start layering in and starting to buy, but I would not do it all at once.”

2008 Rescue

AIG (AIG) added 5.7 percent to $35.26. The U.S. Treasury Department is selling 234.2 million shares at $32.50 each in the sixth offering since the 2008 rescue. The proceeds boost the profit on the rescue that began in 2008 to $22.7 billion, the Treasury said in a statement.

Technology shares advanced the most among 10 industries today, adding 1.4 percent. Apple gained 2.2 percent to $541.39. Morgan Stanley reiterated its recommendation on the shares as its Smart TV survey suggests significant potential from the possible introduction of televisions, with consumers willing to pay a 20 percent premium.

Salesforce.com Inc. rose 4.2 percent to $165. Susquehanna Financial Group raised its price estimate for the largest maker of online customer-management software to $185 from $175, citing growth prospects as corporate customers do more computing tasks over the Internet.

Richard Branson

Delta Air Lines increased 5.1 percent to $10.66. The Atlanta-based carrier agreed to buy the 49 percent stake in Richard Branson’s Virgin Atlantic for $360 million to boost its share of the lucrative trans-Atlantic travel market. Virgin, the biggest long-haul rival to British Airways at London’s Heathrow airport, will also join forces with Delta for the operation of flights between Europe and North America, the companies said today in a statement.

Genworth Financial Inc. (GNW) advanced 2.7 percent to $6.90 after the insurer named Thomas J. McInerney as chief executive officer to stanch losses from insuring mortgages in the U.S. McInerney, previously CEO of ING Americas, replaces Michael Fraizer, who stepped down May 1, the Richmond, Virginia-based company said today. Genworth shares had plunged more than 80 percent since the end of 2006.

TripAdvisor Inc. (TRIP) surged the most in the S&P 500, advancing 6.6 percent to $40.91. Liberty Interactive Corp. bought about $300 million of TripAdvisor shares, gaining voting control of the online travel-review company from billionaire Barry Diller, who stepped down as its chairman.

Facebook Shares

Facebook Inc. will join the Nasdaq-100 Index tomorrow, replacing Infosys Ltd. The operator of the social network with more than 1 billion users will represent 1.02 percent of the index, and require exchange-traded funds that track the gauge to own $356.2 million worth of Facebook shares, according to Markit, a London-based research firm. Facebook added 0.5 percent to $27.98.

Stillwater Mining Co. (SWC), a platinum producer in Montana, increased 7.2 percent to $12.30. The company will replace JDA Software Group Inc. (JDAS) in the S&P SmallCap 600 Index after the close of trading on Dec. 13.

WebMD Health Corp., the online provider of medical information, advanced 12 percent to $15.45 after saying it will eliminate 250 jobs, or 14 percent of the workforce, in a cost- cutting measure designed to deal with a decline in drug-company advertising. The New York-based company said it plans to take a pretax restructuring charge of $6 million to $8 million for the fourth quarter.

Discount Stores

Discount stores fell the most among the 500 stocks in the benchmark U.S. equity index after Dollar General Corp., the largest U.S. dollar-store chain, said it will respond to rivals’ price cuts in the fourth quarter. The Goodlettsville, Tennessee- based company forecast annual sales growth would be at the lower end of its estimate, rising 8 percent to 8.5 percent from the earlier projection of 8 percent to 9 percent.

Dollar General fell 7.8 percent to $42.94, while Family Dollar Stores Inc. declined 8.4 percent to $64.68 and Dollar Tree Inc. slipped 3.7 percent to $37.98.

Hertz Global Holdings Inc. dropped 1.9 percent to $15.90. The second-largest U.S. rental-car company declined after three investors sold 50 million of its shares.

The cost of hedging against losses in U.S. energy companies has fallen to an 18-month low after the shares trailed the broader market and data signaled global economic growth may be picking up. Puts protecting against a 10 percent decline in the Energy Select Sector SPDR Fund cost 5.57 points more than calls betting on a 10 percent rally, the smallest gap since May 2011, according to three-month data compiled by Bloomberg.

Energy ETF

The U.S. exchange-traded fund tracking companies such as Exxon Mobil Corp. and Schlumberger Ltd. has climbed 3.4 percent this year, versus a 13 percent rally for the S&P 500. Energy shares have had the second-worst return among 10 industries in the S&P 500 this year.

“Our forecast is that the U.S. will avoid a recession and experience lumbering but measurably positive growth, while China is going to contribute to global growth which will help energy stocks,” Stephen Wood, the New York-based chief market strategist for North America for Russell Investments, which oversees $159.1 billion, said in a phone interview.

To contact the reporters on this story: Whitney Kisling in New York at wkisling@bloomberg.net; Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net

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