U.S. Stocks Have Broadest Rally in 14 Months on Earnings, Fed
Oct. 24 (Bloomberg) -- U.S. stocks had their broadest advance in more than a year after American Express Co.'s earnings beat estimates and President George W. Bush named his chief economist, Ben Bernanke, as the next Federal Reserve chairman.
``It's a bit of a relief that earnings have been coming along pretty nicely, and the Fed announcement wasn't unexpected,'' said Richard Sichel, who oversees $1.5 billion as chief investment officer of Philadelphia Trust Co. ``That's a great excuse to rally.''
Takeover prospects also helped boost the market. Computer Sciences Corp. climbed after a report that buyout firms bid jointly for the company. Albertson's Inc. gained after two groups of private-equity firms and Kroger Co. made offers.
The Standard & Poor's 500 Index added 19.79, or 1.7 percent, to 1199.38. The Dow Jones Industrial Average increased 169.78, or 1.7 percent, to 10,385. Both measures had their best performance since April 21. The Nasdaq Composite Index ended up 33.62, or 1.6 percent, at 2115.83.
Almost 13 stocks rose for every two that fell on the Big Board, the highest ratio since Aug. 16, 2004. All 24 industry groups in the S&P 500 rose except commercial services, which dropped after Cendant Corp. cut its earnings forecast and disclosed plans to split into four companies.
Some 1.65 billion shares changed hands on the New York Stock Exchange, 5.8 percent more than the three-month average.
Earnings Scorecard
About a third of the S&P 500's members are scheduled to announce results this week. Of those that reported through Oct. 21, about two-thirds surpassed analysts' estimates, beating the average of 59 percent since 1994, according to Thomson Financial.
Better-than-expected results and forecasts ``will set us up for a rally here going into the end of the year,'' said Michael Viracola, co-head of equities at Adams Harkness Inc. in Boston. The S&P 500 is down 1 percent this year.
Stocks today were also supported by a decline in oil prices as Hurricane Wilma missed most of the Gulf of Mexico's production platforms. Crude oil for December delivery lost 0.5 percent to $60.32 a barrel in New York. Falling oil prices have helped investor optimism rebound in October from the lowest in 2 1/2 years, a UBS AG and Gallup Organization poll showed.
American Express
American Express, the best performer in the Dow industrials, climbed $2.39, or 5.1 percent, to $49.54. Earnings from continuing operations at the fourth-largest U.S. credit- card company were 69 cents a share, above the average estimate of 68 cents in a survey by Thomson. Net income rose 17 percent to a record $1.03 billion, or 82 cents a share.
Merck & Co., the third-biggest U.S. drugmaker, gained 82 cents to $27. Net income last quarter increased to 65 cents a share as the company trimmed costs to prepare for a decline in Zocor sales. Merck was expected to earn 62 cents a share, the average analyst estimate compiled by Thomson.
For all the members of the S&P 500, earnings last quarter probably increased an average 15 percent, up from 12 percent in the second period, according to Thomson.
Bernanke's nomination led to confidence the economy can sustain growth. Bernanke, 51, currently serves as the president's chief economic adviser, a role current Fed Chairman Alan Greenspan held earlier, after spending almost three years as a Fed governor.
`Sense of Relief'
Stocks rallied on ``a sense of relief that the uncertainty is past and that they chose one of the quality, mainstream candidates,'' said Richard Hoey, chief economist and investment strategist at Dreyfus Corp. in New York, which has $160 billion in assets.
U.S. Treasury notes declined amid speculation that Bernanke may be more concerned about the pace of economic growth and so would be willing to permit faster inflation. Bernanke has endorsed inflation targeting as a guide to setting rates, which some investors believe may serve as a limit on the central bank's resolve to lift interest rates.
A government report on Oct. 28 may show the economy expanded at a 3.6 percent annual rate from July through September, according to the median estimate of economists in a Bloomberg News survey. That compares with 3.3 percent in the second quarter and an average quarterly gain of 3.1 percent over the past two decades.
Takeovers
Computer Sciences, which manages and integrates technology systems for the U.S. military and government departments, surged $5.06, or 11 percent, to $50.41 for the largest jump in the S&P 500.
The company may receive a takeover bid from a group of private-equity firms that includes Warburg Pincus LLC, Blackstone Group LP and Texas Pacific Group, the Wall Street Journal reported, citing people familiar with the matter. Computer Sciences spokesman Michael Dickerson declined to comment.
Albertson's, a grocer that put itself up for sale in August, climbed $1.19 to $25.25 after receiving the bids. Albertson's spokeswoman Shannon Bennett didn't immediately return a call left on her voice-mail over the weekend. Kroger spokesman Gary Rhodes declined to comment.
Altria Group Inc., the world's largest cigarette maker, gained $1.09 to $74.06. The company could announce early next year that it's splitting into three companies, provided two pending legal decisions go its way, Barron's said on Oct. 22. Timothy Kellogg, an Altria spokesman in New York, said the company declined to comment on the timing of a possible breakup.
Cendant
Cendant lost $1.32, or 6.6 percent, to $18.77 for the second-steepest drop in the S&P 500. The company trimmed its fourth-quarter forecast to as low as 23 cents a share. Analysts anticipated 46 cents. Founder Henry Silverman will split Cendant into four units: real estate, travel distribution, hospitality and car rental.
An index of energy companies gained 3.3 percent for the best performance among 10 industry groups and its largest advance since July. Investors anticipate better-than-expected earnings reports this week from Exxon Mobil Corp., Chevron Corp. and ConocoPhillips.
Exxon, the world's largest publicly traded oil producer, added $1.48 to $56.85 and is forecast to post record earnings. Chevron, the No. 2 U.S. oil company, gained $1.53 to $57.83. ConocoPhillips, the second-largest U.S. refiner, rallied $2.15 to $60.30.
Unisys
Unisys Corp., a seller of computer-consulting services, was the worst performer in the S&P 500 after saying the U.S. government had ``issues'' with a $1 billion contract. The stock tumbled $1.05, or 19 percent, to $4.50.
The company may have overbilled on a contract to improve the nation's transportation security system, the Washington Post reported the weekend. Guy Esnouf, a spokesman for Unisys, didn't return a call from Bloomberg seeking comment.
The Russell 2000 Index, a benchmark for companies with a median market value of $563 million, rose 2.2 percent to 646.60. The Dow Jones Wilshire 5000 Total Market Index, the broadest measure of U.S. shares, added 20l.73, or 1.7 percent, to 11,974.85. Based on the changes in the Wilshire, the value of stocks increased by $252.2 billion.
