10/09/09

(Bloomberg) — U.S. stocks rose, sending the Dow Jones Industrial Average above its highest close in a year, as analyst recommendations spurred gains in technology and health- care shares. The dollar rose, while gold and Treasuries fell.

International Business Machines Corp. led gains in the Dow after Barclays Plc upgraded computer hardware companies, saying server and storage demand is picking up. Google Inc. climbed as Credit Suisse Group AG lifted its price estimate and said the search business will benefit from a rebound in advertising. WellPoint Inc. and Humana Inc. rallied more than 4.3 percent after analysts said shares of health insurers are cheap.

“We’re going even higher,” said Jeffrey Saut, chief investment strategist at Raymond James & Associates in St. Petersburg, Florida, which manages $214 billion. “We’ve got a replacement cycle for technology. Earnings comparisons with last year will be damn good. There are new funds coming into the market. We’ll trade above 1,200 on the S&P 500 by year-end.”

The Standard & Poor’s 500 Index added 0.5 percent to 1,070.48 at 3:09 p.m. in New York. The Dow climbed 69.2 points, or 0.7 percent, to 9,856.1, above its highest close since Oct. 6, 2008. The Nasdaq Composite Index increased 0.5 percent to 2,133.71.

The S&P 500 has rallied 4.2 percent this week as U.S. service industries grew after 11 months of contraction, jobless claims fell more than forecast and Alcoa Inc. kicked off the third-quarter earnings season with an unexpected profit.

Companies in the S&P 500 will report a ninth straight quarter of declining profits, the longest streak since the Great Depression, before returning to growth in the final three months of the year, analysts’ estimates compiled by Bloomberg show.

Dollar Rebounds

The U.S. dollar climbed the most against the yen in two months after Fed Chairman Ben Bernanke said in prepared remarks to a conference in Washington that “when the economic outlook has improved sufficiently, we will be prepared to tighten.”

Bernanke’s comments echoed those by Kansas City Fed President Thomas Hoenig, who on Oct. 6 said raising interest rates wouldn’t derail the U.S. economic recovery.

The S&P 500 has rebounded 58 percent from a 12-year low in March amid signs the worst of a global recession is over. The rally drove its valuation to more than 20 times reported operating income for its companies last month, the most since 2004. Today is the two-year anniversary of the S&P 500’s record closing high of 1,565.15 and the benchmark index is still down 32 percent from that peak.

‘Digestion’

“We’ve come a long way in a short period of time,” Robert Doll, the global chief investment officer of equities and vice chairman at BlackRock Inc., told Bloomberg Radio. “We have some digestion to do. A lot will depend on third-quarter earnings. If we see, as we expect we might, positive earnings surprises not just from cost cutting, that will enable the market to move higher.”

IBM rose 2.8 percent to $125.73. Barclays raised its share target for the world’s biggest maker of mainframe computers by 18 percent to $140 following an upgrade of the hardware industry to “positive” from “neutral.” Hewlett-Packard Co. added 1.7 percent to $47.27.

Intel Corp. led a group of semiconductor companies up 2 percent for to the biggest gain among 24 industries as Barclays said firmer corporate spending should support sales at the world’s largest chipmaker.

Intel added 1.3 percent to $20.14. NetApp Inc., Advanced Micro Devices Inc. and Micron Technology Inc. had the three biggest gains in the S&P 500, rising at least 5.2 percent each.

Google, RIM

Google increased 0.4 percent to $516.24. Credit Suisse raised its share-price estimate for the most-popular Internet search engine to $600 from $475.

Research In Motion Ltd. added 0.8 percent to $69.19. The maker of the BlackBerry device was raised to “outperform” from “neutral” at Robert W. Baird & Co. The 12-month target is $84 per share.

“We’re bullish on both the economy and the stock market,” said Michael Mullaney, a money manager at Fiduciary Trust Co. in Boston, which oversees $9 billion. “We’re going to see positive surprises over the next two quarters as far as economic growth. And that will lead to better earnings being reported by companies. And stock prices will follow that as well.”

Managed-care companies gained after Barclays analysts said the shares have fallen too much on concern over Congress’s pending overhaul of the health-care industry. A group of health insurers retreated 17 percent since mid-September through yesterday, compared with a 0.3 percent drop in the S&P 500.

WellPoint Inc. and Humana Inc. added at least 4.3 percent.

AK Steel rose 0.9 percent to $19.62 after Deutsche Bank AG raised its recommendation for the fourth-largest U.S.-based steelmaker to “buy” from “hold.”

‘New Highs’

More U.S. stocks are trading at 52-week highs than at any time since June 2007, a sign to some investors that the steepest rally in 70 years may be sustained.

The number of companies at a 52-week high on American exchanges topped 1,069 yesterday, according to data compiled by Bloomberg. About a year ago, 14 stocks were at that level.

“When I see new highs leading the market, it bodes well,” said John Wilson, chief technical strategist at Morgan Keegan & Co., which manages about $120 billion in Memphis, Tennessee. “It wouldn’t surprise me to see a sharp rally in the next quarter. The market is acting like it’s going to take out the recent highs.”

Gauges of raw-material and energy producers fell at least 0.3 percent. Gold prices dropped, paring the biggest weekly advance since April, as a stronger dollar cut demand and some investors sold the metal to lock in gains from its climb to a record.

Freeport-McMoRan Copper & Gold Inc., the world’s largest publicly traded copper producer, dropped 1.6 percent to $73.75. Exxon Mobil Corp. declined 0.2 percent to $68.93.

Mining M&A

Newmont Mining Corp. fell 2 percent to $46.09 as the price of gold declined and the Australian Financial Review reported the U.S.-based mining company might be preparing a hostile bid for Australia’s Newcrest Mining Ltd. The newspaper did not say where it got the information.

MetroPCS Communications Inc. slipped 3.8 percent to $8.06 for the second-steepest decline in the S&P 500. AT&T Inc. introduced a pre-paid plan targeted at a market that’s dominated by the pay-as-you-go wireless carrier and smaller rival Leap Wireless International Inc., Pali Research said. Leap retreated 6.2 percent to $16.19.

Yahoo Slumps

Yahoo! Inc. lost 3.8 percent to $16.92. Carl Icahn, the billionaire investor, told CNBC that the owner of the second- most popular U.S. Internet search engine faces challenges competing with Google and Microsoft Corp. for Internet advertising.

Icahn also said that he sees a risk of a double-dip recession because rising unemployment may curtail consumer spending during the holidays.

“We’re right on the precipice” of another contraction in the U.S. economy, he told CNBC.

The U.S. economy shrank 3.8 percent in the year ended in June, the worst economic slump since the 1930s. The contraction slowed to a 0.7 percent annual rate in the second quarter from 6.4 percent in the first three months of the year. Employers cut 263,000 jobs in September, pushing the unemployment rate up to 9.8 percent, the highest since 1983.

Acorda Therapeutics Inc. slumped 20 percent to $17.73. The drugmaker’s pill to help multiple sclerosis patients walk better may not have fully proven its effectiveness, according to a review by U.S. regulators.

White House economic adviser Lawrence Summers yesterday rejected the notion that the U.S. faces an extended period of below-average growth and high unemployment in the wake of the worst recession since the 1930s.

Speaking at a forum in New York organized by Bloomberg LP he said he was “very reluctant to accept the idea that the American economy no longer has the potential to grow rapidly.”

A Bloomberg News survey of economists showed that the rebound in U.S. consumer spending, driven by government stimulus, will wane as the unemployment rate surpasses 10 percent.

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