U.S. Stocks Post Biggest Weekly Gain in Five Years
U.S. stocks rose the most in five
years after the Federal Reserves second interest rate cut in
nine days boosted banks, homebuilders and retailers.
Washington Mutual Inc., the largest savings and loan, Lennar
Corp., the third-biggest homebuilder, and Wal-Mart Stores Inc.,
the largest discount chain, helped lead gains. All 10 sectors and
461 stocks in the S%26amp;P 500 advanced after the half-point reduction
in the Feds target for overnight loans between banks bolstered
speculation that a recession may be averted.
“The Fed finally stepped up, said Jeffrey Kleintop, who
helps oversee about $163 billion as chief market strategist at
LPL Financial Group in Boston. “They gave us what the economy
really needed and what investors needed to get their confidence
back.
The S%26amp;P 500 climbed 4.9 percent for the week, trimming its
yearly loss to 5 percent. The benchmark for U.S. equities has
risen for two consecutive weeks after falling 9.8 percent through
Jan. 18, its worst-ever start for a year. The Dow Jones
Industrial Average added 4.4 percent and the Nasdaq Composite
Index increased 3.8 percent, boosted by Microsoft Corp.s bid for
Yahoo! Inc., owner of the most-visited U.S. Web site.
The drop in interest rates to 3 percent overshadowed the
first decrease in jobs since 2003, the biggest yearly drop in
new-home sales on record and fourth-quarter economic growth that
was half the rate economists forecast. Fed policy makers have cut
the Fed funds rate by 1.25 percentage points to 3 percent since
Jan. 22, the fastest reduction since 1990.
Citigroup Rises
Citigroup Inc., the biggest U.S. bank, added 11 percent to
$29.69. Bank of America Corp., the second-biggest U.S. bank,
gained 14 percent to $45.03. JPMorgan Chase %26amp; Co., the third-
largest U.S. bank, increased 11 percent to $48.25.
Pulte Homes Inc. pushed homebuilders to a four-month high
after forecasting a narrower loss than analysts estimated. The
builder of Del Webb-brand homes for retirees also reported
fourth-quarter revenue that topped estimates. Pulte jumped 21
percent to $15.84. The stock has rallied 60 percent this year,
the second-best gain in the S%26amp;P 500, after retreating 68 percent
in 2007.
Lennar surged 26 percent to $21.40.
Microsoft bid $44.6 billion for Yahoo, offering shareholders
cash or stock in the worlds largest software maker. Yahoo gained
29 percent to $28.38 for the weak, erasing its loss from a sales
forecast on Jan. 30 that disappointed investors. The unsolicited
offer may signal a revival of mergers and acquisitions as
corporate buyers exploit falling stock prices and fill a void
left by private-equity firms, analysts said.
Ambac Rises
Ambac Financial Group Inc. gained 14 percent to $13.20 on
reports that eight banks are working with regulators to rescue
the second-largest bond insurer. Investor concern that Ambac and
its larger rival, MBIA Inc., may lose their AAA credit ratings
contributed to larger-than-average price swings in the U.S. stock
market. MBIA added 15 percent to $16.36.
Washington Mutual soared 35 percent to $21.82. The company,
which reported its first quarterly loss since 1997 this month
after a $1.6 billion writedown in its home-loan unit, said it
expects income to increase as the Federal Reserve cuts interest
rates.
Boeing Co., the worlds second-biggest commercial airplane
maker, rose 7.4 percent to $82.76. Caterpillar Inc., the largest
producer of bulldozers and excavators, increased 8.8 percent to
$71.76. They helped lead industrial companies higher after orders
for durable goods rose more than forecast in December.
Telephone companies gained on a report Sprint Nextel Corp.,
the third-biggest U.S. wireless carrier, may enter a joint
venture with wireless Internet company Clearwire Corp. Sprint
jumped 11 percent to $10.44.
E*Trade Surges
E*Trade Financial Corp. surged 32 percent to $4.97 as the
chief executive officer, chairman and the rest of the board
bought shares of the online broker that tumbled 84 percent last
year. E*Trade predicted a return to profitability last week after
reporting a record $1.71 billion fourth-quarter loss. The company
plans to stem customer defections by investing $85 million this
year in marketing and customer service, including $4 million for
advertisements during this weeks Super Bowl.
Members of the S%26amp;P 500 scheduled to report earnings this
week include MetLife Inc., the biggest U.S. life insurer; Walt
Disney Co., the second-largest U.S. media company; D.R. Horton
Inc., the fourth-largest U.S. homebuilder; and Cisco Systems
Inc., the worlds largest network equipment maker and the second-
largest member of the Nasdaq.
Economic Reports
Economic reports will probably show service industries in
the U.S. expanded in January at the slowest pace in almost a year
as home sales and construction declined, according to economists
surveyed by Bloomberg. The U.S. House on Jan. 29 approved a $146
billion economic stimulus plan aimed at averting a recession in
part by sending tax-rebate checks to about 111 million Americans.
The S%26amp;P 500 has advanced 3 percent on average during the
first six months of similar Fed easing cycles and posted a 14
percent average gain during the entire cycle, Bespoke Investment
Group LLC wrote in a research note. The S%26amp;P 500 has dropped about
3.5 percent since Aug. 17, when the Federal Open Market Committee
unexpectedly cut the so-called discount rate by 0.5 percentage
point to 5.75 percent.
“The bull case is that rates are coming down and that the
worst is behind us, said Mike Morcos, who helps manage about
$1.4 billion at Old Second Wealth Management in Aurora, Illinois.
“The Fed easing is going to lead us on the road to recovery.
The Russell 2000 Index, whose members have a median market
value of $557 million, gained 6.1 percent to 730.50 this week.
The benchmark for small U.S. stocks has outperformed the S%26amp;P 500
for the last three weeks, the longest streak since March.
