S&P 500 Rises Most Since ’87 as Bernanke Helps Offset Europe

January 19, 2012, 12:55 PM EST By Inyoung Hwang and Whitney Kisling

Jan. 19 (Bloomberg) -- U.S. stocks are off to the best start in 25 years as investors speculate Federal Reserve Chairman Ben S. Bernanke has done enough to insulate the economy from Europe’s debt crisis.

The S&P 500 has gained 4 percent, the most since it rose 10 percent over the first 11 days in 1987, according to data compiled by Bloomberg. Stocks are overcoming earnings that trailed estimates by the widest margin in three years as improvements in hiring, manufacturing and car sales extend the biggest fourth-quarter advance since 2003.

Bernanke has left the target rate on overnight loans between banks unchanged since the end of 2008, the longest stretch since at least 1971, data compiled by Bloomberg show. The policy may push more investors toward equities after yields on 10-year Treasuries finished 2011 within a quarter-point of a record low and the economy grew at an estimated 3.1 percent rate last quarter, said John Carey of Pioneer Investments.

“It’s probably a good idea not to fight someone so much bigger than you are,” Carey, a Boston-based money manager at Pioneer, said in a telephone interview on Jan. 18. The firm oversees about $220 billion. “The Fed will probably stay on its course,” he said. “I haven’t heard any indication that the Fed is considering boosting interest rates, so stocks will look attractive from an income point of view.”

Worst to First

Four companies whose declines were among the 10 biggest in the S&P 500 last year are among the 10 largest gainers in 2012. Netflix Inc., the Los Gatos, California-based movie service, climbed 42 percent, and First Solar Inc. in Tempe, Arizona, is up 27 percent. Charlotte, North Carolina-based Bank of America Corp., which lost 58 percent in 2011, gained 22 percent this year, while Sears Holdings Corp. in Hoffman Estates, Illinois, rose 24 percent after losing 56 percent.

The S&P 500 advanced seven of the first eight days this year, something that has occurred eight times since 1900, data compiled by JPMorgan Chase & Co. show. The mean return those years was 16 percent, the data show.

About $460 billion has been added to the value of American shares this year and the S&P 500 reached an almost six-month high yesterday, as economic reports outweighed concern that downgrades for European nations would worsen the debt crisis. France was stripped of its top rating by S&P and banks suspended talks with Greece over restructuring.

Economic Growth

“Europe is important but it’s not the end of the world if they see a recession,” James Dunigan, who helps oversee $107 billion as chief investment officer in Philadelphia for PNC Wealth Management, said in a Jan. 17 phone interview. “We’re starting to see that modest economic growth expectation for this year.”

The average forecast for U.S. gross domestic product growth this year has been rising since October. From a low of 2 percent, the median estimate in a survey of 72 economists has climbed to 2.3 percent, including a 0.2-point increase on Jan. 12 that represented the biggest one-day gain since projections for 2012 began, according to data compiled by Bloomberg.

Optimism about the economy is helping investors shrug off fourth-quarter earnings that have trailed estimates. Profit fell short of analyst forecasts by an average of 4.3 percent among the eight S&P 500 companies that posted results in the first week of earnings season, the data show. Three other quarters with a worse first week of earnings season were in 2007 and 2008 as the economy was slipping into to the worst recession since the 1930s.

Five-Month High

The S&P 500 increased 1.1 percent to 1,308.04 yesterday, the highest level since July 26. It climbed 1.4 percent over four days last week, reaching a five-month high of 1,292.48 on Jan. 11 even after Microsoft Corp., the world’s biggest software maker, said personal computer sales were probably worse than forecast in the fourth quarter.

“This year isn’t going to be about earnings,” James Paulsen, who helps oversee about $333 billion as chief investment strategist at Minneapolis-based Wells Capital Management, said in a Jan. 17 phone interview. “There’s a lot of value in the market that could come just from people calming down about this recession, depression calamity. It’ll be about expanding that multiple.”

Combined S&P 500 profit is forecast to reach $104.76 a share in 2012, the highest level ever, according to data compiled by Bloomberg. The benchmark index is trading at 12.5 times forecast earnings. That compares with 13.4 at the beginning of 2011. The S&P 500’s average ratio in 2011 was 14.1 based on reported earnings. The five-decade mean is 16.4.

Unprecedented Stimulus

Central banks around the world have taken unprecedented measures to prevent the European debt crisis from triggering a global recession. European Central Bank President Mario Draghi last month unveiled plans to offer banks 36-month, 1 percent loans through two so-called longer-term refinancing operations, known as LTROs.

That combined with investor speculation of a third round of stimulus by the Fed and bets China’s central bank will ease monetary policy has fueled stock prices, according to Doug Noland, the money manager for Pittsburgh-based Federated Investors Inc.’s Prudent Bear Fund, which oversees $1.3 billion. It won’t last, he said.

“Markets over the years have become programmed to focus a lot on monetary stimulus,” Noland said in a Jan. 17 phone interview. “It’s a very dangerous reason to be buying equities. We saw in 2011 how QE2 didn’t have much fire power. We’ve seen European policy making repeatedly disappoint the markets.”

Target Rate Unchanged

Fed policy makers have left their target rate unchanged since the end of 2008, data compiled by Bloomberg show. The S&P 500 more than doubled from its low in March 2009 after Bernanke signaled in August 2010 the central bank would embark on a second round of asset purchases, known as quantitative easing, to boost the economy.

The index declined as much as 19 percent from its 2011 high in April through October last year as the program ended and concerns European leaders would fail to tame the region’s debt crisis escalated. It has since rebounded 19 percent.

Gross domestic product in the euro region will shrink by 0.2 percent this year, the median estimate in a survey of 21 economists surveyed by Bloomberg. The diverging outlooks are reducing lockstep price moves. The so-called 30-day correlation coefficient between the euro and S&P 500 fell 27 percent to 0.66 after reaching a record 0.91 in November.

Correlation Weakens

Speculation about whether European leaders would succeed in containing the credit crisis sent equity, currency and commodity markets up and down in unison last year. The relationship between U.S. stocks and the euro weakened after American unemployment fell to 8.5 percent from 9 percent and business activity as measured by the Chicago Purchasing Managers Index expanded at the fastest pace in seven months.

“A lot of people dismissed the original data in the fall as being backward looking,” Paul Zemsky, the New York-based head of asset allocation for ING Investment Management, said in a telephone interview. His firm oversees $550 billion. “But when you started seeing jobless claims going down, it looked more and more like the U.S. had shrugged off a lot of the European contagion.”

Rallying stocks have done little to entice investors. Mutual funds that invest in U.S. equities posted $753 million in inflows for the week ending Jan. 11 after $7.1 billion in outflows during the first week of the year, Investment Company Institute data show. Customers pulled about $63 billion for the final three months of 2011, the data show.

The S&P 500 has gained an average 6.1 percent during presidential election years, compared with 4.4 percent in the years that follow, according to Bloomberg data going back to 1952. The index has posted a positive return for the last seven months of those years 87 percent of the time, data from the Stock Trader’s Almanac show.

“Committed bears have to pull in their claws a little,” according to Brian Barish, who helps oversee about $7 billion as Denver-based president of Cambiar Investors LLC. “On the more bullish side, corporate earnings continue to be very good and stocks in a lot of areas are quite undemanding in terms of their valuations,” Barish said in a Jan. 17 phone interview. “We could have a good year.”

--With assistance from Lu Wang in New York. Editors: Chris Nagi, Jeff Sutherland

To contact the reporters on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net; Whitney Kisling in New York at wkisling@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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U.S. Stocks Rise as S&P 500 Posts Second-Best Start Since 2006

January 07, 2012, 6:09 AM EST By Katia Porzecanski and Lu Wang

Jan. 7 (Bloomberg) -- U.S. stocks rose this week, sending the Standard & Poor’s 500 Index to its second-best start of a year since 2006, as reports on manufacturing from America to China bolstered optimism about the global economy.

Equities fell on the last day of the week after growth in U.S. jobs failed to lift the S&P 500 above its October high. Bank of America Corp. and Microsoft Corp. jumped more than 8.3 percent to lead advances in the Dow Jones Industrial Average during the holiday-shortened week. Netflix Inc. soared 25 percent after reporting online viewing that surpassed an estimate from BTIG LLC. Sears Holdings Corp. and AutoNation Inc. fell more than 8.1 percent to pace declines among retailers.

The S&P 500 climbed 1.6 percent to 1,277.81 in the first four trading days of the year, the second-best start in the past six years after a 2.4 percent gain in 2010, according to data compiled by Bloomberg. The Dow added 1.2 percent, or 142.36 points, to 12,359.92 for the week.

“The pace of growth is slowing but we’re still seeing corporate growth,” Peter Jankovskis, who helps manage about $2.4 billion at Oakbrook Investments in Lisle, Illinois, said in a phone interview. “The U.S. economy is moving along reasonably well. When the negative factor of Europe goes away, that comes back to the fore and allows the markets to move forward.”

Top of Range

Stocks gained during the week after reports showed U.S. factory output grew in December at the fastest pace in six month while manufacturing data in China beat economists’ estimates. The S&P 500 has jumped 16 percent from its 2011 low as better- than-expected economic data boosted optimism that the world’s largest economy can weather Europe’s sovereign-debt crisis. The rally has brought the index toward the top of a trading range it has been stuck in since August and pushed the Chicago Board Options Exchange Volatility Index, a gauge of market fear, to 20.63, the lowest level since July.

The S&P 500 snapped a three-day gain on Dec. 6 even after figures from the Labor Department showed payroll growth in December beat forecasts and the unemployment rate dropped to the lowest level in almost three years. A report showing German factory orders had the biggest drop in almost three years spurred concern that Europe was headed into a recession.

Raw-materials producers and financial shares led the S&P 500’s gain during the week, jumping 3.8 percent and 3.1 percent as a group, respectively. Bank of America rallied 11 percent to $6.18 amid speculation the U.S. may introduce a new mortgage refinancing program. A government official, who asked for anonymity, denied that the White House is considering a trillion-dollar plan to refinance home loans.

Latin American Farmers

Monsanto Co. surged 11 percent to $77.51. The world’s largest seed company posted first-quarter earnings that exceeded estimates because of demand from Latin American farmers. U.S. orders are ahead of last year, Monsanto said.

Alcoa Inc., due to start the earnings season on Jan. 9, added 5.9 percent to $9.16. The biggest U.S. aluminum producer may say it lost 1 cent a share in the fourth quarter, according to the average estimate from analysts in a Bloomberg survey.

Microsoft, the software maker that’s scheduled to report results on Jan. 19, climbed 8.3 percent to $28.11.

S&P 500 companies, which beat analysts’ estimates in the previous 11 quarters, are forecast to report a 6 percent increase in per-share profit during the September-December period, according to projections compiled by Bloomberg. That would mark the slowest growth since the third quarter of 2009.

Online Viewing

Netflix surged 25 percent to $86.29 for the biggest gain in the S&P 500. The owner of the streaming and DVD-by-mail service said its online customers watched more than 2 billion hours of content in the last three months of 2011. Rich Greenfield, an analyst with BTIG, estimated 1.2 billion hours.

AutoNation posted the biggest loss on the S&P 500, sinking 9.3 percent to $33.44. Edward Lampert’s hedge fund cut its stake in the auto retailer to 52.5 percent from 56.4 percent, according to a regulatory filing.

Sears fell 8.1 percent to $29.20, extending its slump for a fifth week. The largest U.S. department store chain had its debt rating cut by S&P and Moody’s Investors Service on deteriorating earnings.

“What U.S. investors are focused on are three exogenous variables: the sovereign debt mess in Europe, the prospect of slower growth out of emerging markets and the policy dysfunction that we’re dealing with in Washington,” Philip Orlando, the New York-based chief equity market strategist at Federated Investors Inc., said in a telephone interview. His firm oversees about $355 billion. “If those issues didn’t exist, the S&P 500 would be at something like 1,800, because of this improvement in domestic economic fundamentals that we’ve seen.”

--With assistance from Whitney Kisling, Ksenia Galouchko and Jeff Kearns in New York. Editors: Jeff Sutherland, Nick Baker

To contact the reporters on this story: Katia Porzecanski in New York at kporzecansk1@bloomberg.net; Lu Wang in New York at lwang8@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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Smallest S&P 500 Gain Since 2005 Seen by Equity Strategists

January 03, 2012, 6:50 AM EST By Inyoung Hwang

(Adds Morgan Stanley forecast in second paragraph.)

Jan. 3 (Bloomberg) -- Forecasters at securities firms are more conservative on U.S. stocks than any time in seven years, predicting the Standard & Poor’s 500 Index will rise 7.2 percent in 2012 as budget deficits around the world limit gains.

The benchmark gauge will climb to 1,348 after it was virtually unchanged in 2011 and the U.S. beat every equity market in the developed world except Ireland, according to the average forecast of 12 strategists tracked by Bloomberg. That’s the smallest predicted return since 2005. Adam Parker of Morgan Stanley, whose estimate for 2011 proved the most accurate among current analysts, forecast a loss of 7.2 percent as Europe’s debt crisis will keep volatility above historical levels.

Bulls at Oppenheimer & Co. and Citigroup Inc. say record profits and improving U.S. economic data will propel stocks after the S&P 500 advanced 86 percent since March 2009. Parker and UBS AG’S Jonathan Golub say the prospect of a global slowdown will curb investors’ appetite for equities and keep the rally from gaining momentum.

“The question we pose is, ‘Do you want to be buying it now?’” Golub, the New York-based chief U.S. market strategist at UBS, said in a phone interview on Dec. 29. “A year is a long time. Will there be better entry points than right now? We think the answer is yes.”

Smallest Change

Shares fell last week after an expansion in the European Central Bank’s balance sheet stoked concern the region’s debt crisis will worsen. The S&P 500 lost 0.6 percent to 1,257.6, erasing its 2011 gain and leaving the measure with the smallest price change for any year since 1947. Financial companies led the retreat in 2011, declining 18 percent, and utilities advanced 15 percent.

Golub says the S&P 500 will climb to 1,325 in 2012, the same forecast he gave at the beginning of last year. Credit market conditions, including yields on the 10-year Treasury note that are below 2 percent, are signaling Europe’s crisis may worsen in the first half, slowing earnings growth, he said.

The S&P 500 ended 2011 about 8.3 percent below the 1,371 average strategist estimate from 12 months earlier, data compiled by Bloomberg show. The gap compares with a 13-year average of 7.2 percent and is the biggest miss since 2008, when the index’s 38 percent retreat left it 45 percent below the mean projection. Wall Street firms underestimated the measure’s close by 2.7 percent in 2010 and 3.4 percent in 2009, the data show.

Pared Estimates

Forecasters pared their average 2011 prediction from 1,401 on Aug. 2 after S&P stripped the U.S. of its AAA credit rating, President Barack Obama and Congress struggled over deficit cuts and Europe was forced to bail out Greece. The index moved 1.3 percent a day since April, compared with 50-year average of 0.6 percent before the collapse of Lehman Brothers Holdings Inc.

“Volatility carried the day,” Jeffrey Schwarte, a money manager who helps oversee about $231 billion in Des Moines, Iowa, at Principal Global Investors, said in a telephone interview on Dec. 29. “The market was very top-down, looking at the macro drivers, and assumed everybody’s going to have poor earnings going forward. That’s certainly not the case from our perspective.”

Stock advisers are counting on the same things to spur this year’s gain as they did in 2011: profits that are exceeding analyst estimates, record low interest rates and prospects for an expanding economy. The S&P 500 rallied as much as 102 percent from its low in March 2009.

Stock Valuations

The benchmark index tumbled 19 percent from its April high through Oct. 3 as more than $3 trillion was wiped from U.S. equities. For the year, the S&P 500 traded at an average price- earnings ratio of 14.1, compared with the five-decade mean of 16.4. The measure is trading at 11.6 times forecasts for 2012 profits, with analysts calling for a 9.7 percent gain to $108.38 a share for S&P 500 earnings, the highest level ever.

Earnings multiples will contract in 2012 as investors concerned about the outcome of the U.S. presidential election, growth in China and Europe’s debt crisis refuse to pay more for profits, according to Parker, U.S. equity strategist at Morgan Stanley. Last year’s 5.5 percent gain in the Dow Jones Industrial Average compares with an average of 12 percent in years prior to elections since the measure’s creation in 1896, data compiled by Bloomberg show.

“You don’t want to pay a higher multiple for today’s earnings knowing that there’s this negative skew as to what can happen,” he said in a telephone interview on Dec. 28. “About half of getting a stock right these days seems to come from bottom-up issues and half seems to come from macro issues.”

Profit Estimates

Parker predicted at the beginning of 2011 the S&P 500 would end the year at 1,238, 1.6 percent from the close. His forecast was the lowest in a survey of 12 strategists’ estimates compiled by Bloomberg and compared with the average projection of 1,371. In a report to investors dated yesterday, he wrote the benchmark will close the year at 1,167. His forecast isn’t included in the average of 12 strategist calls by Bloomberg.

Bulls say rising profits mean the S&P 500’s earnings yield will expand, fueling gains in prices. Strategists are more pessimistic than equity analysts about how much earnings will climb in 2012, forecasting $102.31 a share. That would still represent the highest level ever.

Brian Belski, Oppenheimer & Co.’s New York-based chief investment strategist, said he’s never seen investors more influenced by the economy and government than now. That’s a bullish signal because it means there are more people who may change their minds and buy stocks in 2012, he said.

Equity Bull Market

Belski says the S&P 500 will climb 11 percent to 1,400 in 2012. He forecast the index would rise 5.4 percent last year to 1,325. When he gave his prediction, the average strategist projection for the end of 2011 was 1,379, according to Bloomberg data.

“We’re at the cusp of the next great equity bull market,” Belski said in a telephone interview on Dec. 28. “The U.S. is not just the best house in a bad neighborhood anymore. It’s the best house period. This has all been led by the structural change that corporate America has undergone in the last 10 years.”

The S&P 500 had the tenth-best performance in 2011 among the world’s stock markets. China’s Shanghai Stock Exchange Composite Index and Brazil’s Bovespa slumped 22 percent and 18 percent respectively. Japan’s Topix lost 19 percent, while the DAX Index of German stocks erased 15 percent. Ireland’s ISEQ Overall Index climbed 0.6 percent, the only benchmark to beat the S&P 500 among 24 developed markets.

Corporate Cash

Companies built reserves as stocks sank and forecasts for growth in U.S. gross domestic product in 2012 slipped from 3.3 percent in February to as low as 2 percent in October. Cash at companies excluding banks, utilities, truckers and automakers rose to a record $998.9 billion in the third quarter, according to S&P.

Low investor expectations for earnings growth will help stocks rise when companies beat estimates, Citigroup’s Tobias Levkovich said in a Dec. 27 interview on Bloomberg Television’s “Street Smart.” He sees the S&P 500 climbing to 1,375 in 2012.

S&P 500 companies have beaten Wall Street profit estimates for 11 straight quarters. An average of 73 percent of corporations in the index exceeded analysts’ estimates in the first three quarters of 2011, with earnings-per-share topping projections by 5.3 percent, according to data compiled by Bloomberg.

“Markets are going to be moving higher,” Levkovich, the New York-based chief U.S. equity strategist at Citigroup, said. Clients who are money managers speculate earnings in 2012 will be about $95 a share, he said. “So if it’s comes in at about $100, that’s better than what investors believe.”

--Editors: Chris Nagi, Michael P. Regan

To contact the reporter on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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U.S. Stocks Erase Yearly Gain as S&P 500 Moves Least Since 1947

January 02, 2012, 2:39 AM EST By Ksenia Galouchko and Lu Wang

Dec. 31 (Bloomberg) -- U.S. stocks fell this week, leaving the Standard & Poor’s 500 Index virtually unchanged for the year, as concern Europe’s debt crisis will weigh on the economy halted a two-year rally in equities.

The benchmark gauge for U.S. equities lost 0.04 point to 1,257.60 in 2011, the smallest annual change since 1947. Financial shares slid 1.3 percent in the week and 18 percent this year, the worst drop among 10 industries, as Bank of America Corp. tumbled 58 percent. Commodity producers fell 12 percent as a group. First Solar Inc. had the biggest drop in the S&P 500, losing 74 percent, followed by coal producer Alpha Natural Resources Inc. with a 66 percent loss.

Gauges of health-care companies, utilities and makers of household products and other consumer staples climbed more than 10 percent this year as investors bought companies whose profits are least-tied to economic growth. Cabot Oil & Gas Corp. in Houston rose 101 percent in 2011 for the gauge’s biggest rally, followed by pipeline owner El Paso Corp. and Sunnyvale, California-based medical device maker Intuitive Surgical Inc.

“It’s the year I’d like to forget because of all the tumult in the markets,” Brian Jacobsen, who helps oversee $209 billion as chief portfolio strategist at Wells Fargo Advantage Funds in Menomonee Falls, Wisconsin, said in a telephone interview. “The U.S. data has been looking better but it’s not just the matter of the U.S. data but what’s the outlook, and investors are still concerned about whether or not economic recovery is losing steam.”

European Concerns

The S&P 500 fell 0.6 percent this week as Spain’s widening budget deficit and a surge in the European Central Bank’s balance sheet stoked concern over the region’s debt crisis, offsetting better-than-expected U.S. consumer confidence and home sales data. The Dow Jones Industrial Average declined 76.44 points, or 0.6 percent, to 12,217.56, paring its 2011 gain to 5.5 percent.

The S&P 500 finished the year recording record price swings and correlations. The benchmark index started the year with a rally, rising as much as 8.4 percent to a three-year high by the end of April and extending its rebound from a March 2009 bear- market low to 102 percent.

The index tumbled throughout the summer as Congress and President Barack Obama struggled over U.S. deficit cuts, leading S&P to strip the nation of its AAA rating in August, and concern grew that the euro-area’s debt crisis was threatening the global economic recovery. The S&P 500 fell as much as 19 percent from April to its low for the year on Oct. 3.

Rising Correlations

Developments in Europe’s efforts to tame its debt crisis led to near-lockstep movement in equity prices. The 50-day correlation of S&P 500 stocks to gains or losses in the full index increased to a record 0.86 in October, according to data compiled by Westport, Connecticut-based Birinyi Associates Inc. A level of 1 would mean all 500 stocks moved together. Correlation was 0.78 on Dec. 30, 73 percent higher than its average since 1980.

The Dow alternated between gains and losses of more than 400 points on four days for the first time ever in August. Daily share swings in the S&P 500 averaged 2.2 percent that month, the most for any August since 1932, Bloomberg data show. The index moved an average of 1.9 percent a day from May through the end of the year, compared with the 50-year average of 0.6 percent before the collapse of Lehman Brothers Holdings Inc. in 2008.

Fund Withdrawals

Investors have been pulling money from mutual funds that focus on U.S. stocks for a fifth year. Outflows totaled $116 billion in the first 11 months of this year, the highest since 2008, according to data compiled by Bloomberg from the Investment Company Institute, a Washington-based trade group.

U.S. companies have beaten analyst profit estimates for 11 straight quarters as the country climbed out of the worst recession since the Great Depression. Earnings from S&P 500 companies are forecast to reach a record $98.79 a share this year, and climb 9.7 percent in 2012 and 12 percent in 2013, according to analysts’ estimates compiled by Bloomberg.

As stock prices failed to keep up pace with earnings, valuations reached levels cheaper than 72 percent of the time since 1954, according to data compiled by Bloomberg. The S&P 500 ended the year trading at 13.2 times reported earnings, 20 percent below the average multiple of 16.4, the data show.

‘Murky Outlook’

“If you look at balance sheets and cash flow statements, stocks are attractively valued, but they’re not incredibly cheap considering the murky outlook that we have from the political arena,” Jacobsen at Wells Fargo said. “People are clamoring for safer assets, the classic defensive sectors.”

The Morgan Stanley Consumer Index, which tracks drugmakers and food companies, added 0.7 percent this year, compared with a 16 percent loss in the firm’s cyclical measure of commodity producers and transportation providers.

The S&P 500 Dividend Aristocrats index, which follows companies that have raised payout for at least 25 consecutive years, returned 8.3 percent. The S&P 500 ended the year with a dividend yield of 2.1 percent, compared with a rate of 1.88 percent for 10-year Treasuries, and the index returned 2.1 percent in 2011 including reinvested dividends.

Bank of America plunged 58 percent to $5.56 in 2011, making it the worst performer in the Dow, as concern about mounting mortgage losses and a global economic slowdown weighed on the second-biggest U.S. lender. The decline erased almost $80 billion of shareholder value, and was the firm’s largest drop since a 66 percent plunge in 2008, when a U.S. bailout staved off a collapse.

Alcoa, First Solar

Alcoa Inc., largest U.S. aluminum producer, slumped 44 percent to $8.65 this year for the second-worst drop in the Dow as prices of the lightweight metal tumbled 18 percent.

First Solar tumbled 74 percent to $33.76. The biggest manufacturer of thin-film solar cells slashed its sales and profit forecasts for 2011 after ousting Rob Gillette as chief executive.

Alpha Natural declined 66 percent to $20.43 after acquiring Massey Energy Co. for $7.1 billion and announcing earnings that missed analysts’ estimates for the first two quarters of 2011.

Cabot Oil surged 101 percent to $75.90 this year. The company, which has fields in Pennsylvania, Texas and Oklahoma, projected output will rise as much as 55 percent next year. El Paso, based in Houston, rallied 93 percent to $26.57 in 2011 after agreeing to be bought by Kinder Morgan Inc. for $21 billion.

Intuitive Surgical jumped 80 percent to $463.01. The maker of a robotic system to perform surgery reported earnings that beat analyst estimates for the 10th straight quarter, according to data compiled by Bloomberg.

Netflix Inc. dropped 61 percent to $69.29. The video- streaming and DVD subscription service reduced its subscriber forecast and predicted losses in 2012.

--With assistance from Inyoung Hwang and Katia Porzecanski in New York. Editors: Michael P. Regan, Jeff Sutherland

To contact the reporters on this story: Ksenia Galouchko in New York at kgalouchko1@bloomberg.net; Lu Wang in New York at lwang8@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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European Stocks Gain This Week, Pare First Annual Loss Since ’08

January 02, 2012, 2:39 AM EST By Adam Haigh

Dec. 31 (Bloomberg) -- European stocks climbed in the last week of 2011 as U.S. data showed the recovery in the world’s largest economy is gathering pace and optimism grew that euro- area policy makers will contain the debt crisis.

Banco Comercial Portugues SA and Banco Espirito Santo SA, Portugal’s largest lenders, jumped more than 15 percent after a report that the government may recapitalize the banks without becoming a shareholder. Britvic Plc led food and beverage producers higher, extending this year’s gains for the industry.

The benchmark Stoxx Europe 600 Index rose 1.1 percent to 244.54, the highest since Oct. 28. The second-straight week of gains helped trim this year’s losses to 11 percent. The gauge has rallied 14 percent from this year’s low on Sept. 22 as euro- area leaders planned to channel central-bank loans through International Monetary Fund to debt-ridden nations and the European Central Bank took steps to ease a cash squeeze.

“There is a risk of losing sight that gradually progress has been made,” said William De Vijlder, who oversees $778 billion as the global chief investment officer of Paris-based BNP Paribas Investment Partners. “The ECB has eased its policy. The firepower of the IMF is being increased.”

Reports this week showed business activity in the U.S. expanded more than forecast and confidence among American consumers rose in December to the highest level in eight months.

Dwindling Volumes

Post-Christmas trading was slow, with daily volume in the Stoxx 600 this week dipping to 32 percent of this year’s average, according to data compiled by Bloomberg.

The Stoxx 600 gained 5.6 percent from the start of the year to its peak on Feb. 17. From there, the index tumbled 26 percent to its low on Sept. 22, entering a bear market. The gauge had its worst third quarter since 2002, dropping 17 percent, as U.S. leaders wrangled over deficit cuts and European policy makers remained divided on their response to the debt crisis.

An Oct. 26 agreement to bolster the region’s bailout fund, the European Financial Stability Facility, stalled as Germany and France differed over how tackle the crisis. France called for using the ECB as a backstop, while Germany rejected it. Chancellor Angela Merkel listed using the ECB as the lender of last resort, issuing joint euro-area bonds and going in for a “snappy debt cut” as unworkable proposals.

Lenders Lead Losses

Banks had the biggest drop among 19 industry groups this year, sinking 32 percent, amid growing concern that the fiscal crisis will force at least one nation to default on its debt. Health-care and food stocks advanced as investors sought companies whose earnings are less tied to economic growth.

The decline in European equities compares with an 17 percent tumble in the MSCI Asia Pacific Index and a 0.4 percent gain in the S&P 500 at the close on Dec. 29.

Banco Comercial Portugues advanced 16 percent to a two- month high. Chinese banks may be interested in investing in the lender, news agency Lusa reported citing Cao Guangjing, chairman of China Three Gorges Corp.

Banco Espirito Santo rose 15 percent. Portugal may recapitalize the country’s banks without becoming a shareholder, Jornal de Negocios reported, without saying where it got the information. The state may subscribe contingent convertible bonds sold by the banks, the newspaper said. So-called CoCos are bonds that convert into equity if a bank’s capital drops below a set level.

Britvic rallied 4.7 percent. Unilever climbed 1.6 percent. Nestle SA added 1.5 percent.

Rio Tinto Group declined 1 percent, as copper slid on the London Metal Exchange this week.

--With assistance from Adria Cimino in Paris. Editors: Srinivasan Sivabalan, Andrew Rummer

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net

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Global M&A at Lowest Level Since Mid-2010

December 30, 2011, 11:03 AM EST By Serena Saitto

(Updates year-to-date figures starting in second paragraph.)

Dec. 29 (Bloomberg) -- The value of global takeovers dropped to the lowest level in more than a year this quarter, and dealmakers say Europe’s debt crisis may hamper a recovery in 2012 as cash-rich companies hold off on major purchases.

Mergers and acquisitions have slumped 15 percent from the previous three months to $464 billion, making the fourth quarter the slowest since mid-2010, according to data compiled by Bloomberg. For the year to date, announced takeover volume has risen just 3.2 percent to $2.26 trillion after regulatory hurdles scuttled AT&T Inc.’s bid for T-Mobile USA, which would have been 2011’s biggest deal.

Tightening credit markets, the risk of a euro-zone collapse and stock-market swings have deterred companies from pursuing transformational deals that would spur sales growth, M&A bankers said. Earlier in 2011, more favorable conditions emboldened acquirers to part with stockpiled cash, such as Johnson & Johnson’s $21.3 billion bid for Synthes Inc. and Express Scripts Inc.’s $29.1 billion offer for Medco Health Solutions Inc.

“There’s definitely pent-up demand for M&A as well- capitalized companies continue to focus on opportunities for strategic acquisitions,” said Yoel Zaoui, co-head of global M&A at Goldman Sachs Group Inc. “The key driver for M&A, however, is confidence, and in Europe, at the moment, that is lacking.”

Seven of the year’s 10 biggest deals were announced before August, when European markets fell the most since October 2008 amid a global stock rout and Standard & Poor’s cut the U.S. credit rating. Goldman Sachs is the top adviser on global takeovers for 2011, with $537 billion of deals this year, followed by JPMorgan Chase & Co. and Morgan Stanley, Bloomberg data show. This year’s growth in M&A volume compares with a 24 percent jump in 2010.

‘Wait and See’

Europe’s financial crisis will stifle lending, push the region into recession and weigh on the U.S. economy through early 2012, Jan Hatzius, Goldman Sachs’s chief economist, said on a Nov. 30 conference call. The euro zone’s unemployment rose to 10.3 percent in October, the highest since the currency began in 1999.

As the European crisis deepened, “dealmakers entered a wait-and-see mode, and that’s where we are now,” said Paul Parker, global head of M&A at Barclays Plc in New York. “Offsetting forces such as companies’ cash piles and low valuations should drive the recovery of M&A activity in the second half of the year.”

The MSCI World Index of about 1,600 companies trades for 12.6 times reported earnings, showing equities in developed economies are cheaper than they’ve been more than 95 percent of the time since 1995, according to data compiled by Bloomberg. Those companies are also sitting on $5.3 trillion in cash, the data show.

Antitrust Hurdles

Companies that did tap funds this year may not be able to complete their purchases as regulatory scrutiny threatens to derail more takeovers. Express Scripts’s offer for Medco, which would create the largest U.S. manager of pharmacy benefits for employers, insurers and union health plans, has prompted state inquiries over whether the combination would command too much market power.

AT&T abandoned efforts to buy T-Mobile USA from Deutsche Telekom AG this month after the U.S. Justice Department sued the companies in August, saying a combination would substantially reduce competition. Companies contemplating similar deals may hold off until the next presidential election in the hope that a Republican White House would make it easier to win approval for big transactions, said Jeffrey Silva, a Washington-based policy analyst with Medley Global Advisors.

European Deals

Deutsche Boerse AG and NYSE Euronext this week delayed the deadline for completing their merger until March 31 as the exchange operators try to persuade European Union regulators to approve the deal. While the U.S. cleared the combination, the EU has told the companies that concessions they offered to allay antitrust concerns don’t go far enough, two people familiar with the talks said this month.

Dealmaking involving European companies rose 2.6 percent this year, bolstered by the first half. For the fourth quarter, announced volume sank 13 percent from the previous three months to $162.6 billion. Valuations have also dropped, making the MSCI Europe Index even cheaper than the MSCI World Index at 10.8 times earnings. That may create opportunities for buyers from nations such as China.

“Chinese companies have been very successful at buying natural resources in emerging markets, and they are now very supportive of buying industrial assets in Europe,” said Thierry d’Argent, global head of M&A at Societe Generale SA in Paris.

Asia Pacific

French dairy-product maker Yoplait and the aviation unit of Royal Bank of Scotland Group Plc both attracted interest from Chinese bidders this year, according to people with knowledge of those negotiations.

The value of acquisitions involving Asia Pacific companies rose 4.2 percent to $701 billion this year, according to Bloomberg data. The biggest deal was Nippon Steel Corp.’s proposed takeover of Sumitomo Metal Industries for about $22 billion, including debt. That was followed by BHP Billiton Ltd.’s purchase of Houston-based oil and gas explorer Petrohawk Energy Corp.

Foreign buyers also spent more on Asia Pacific in 2011 than any year since 2007, according to the data. The largest overseas bid was SABMiller Plc’s $10 billion takeover of Australian beer maker Fosters Group Ltd., the data show. Among Asian countries, Japan overtook China as the biggest acquirer of foreign assets for the first time since 2008 after the March 11 earthquake spurred companies to retrench.

Japan’s Takeovers

“Japanese industries had been shrinking, and companies needed growth drivers,” said Kenji Fujita, head of M&A advisory at Mitsubishi UFJ Morgan Stanley Securities Co., the Tokyo-based investment banking venture of Morgan Stanley and Mitsubishi UFJ Financial Group Inc. “The earthquake raised the urgency for that.”

Japan’s Kirin Holdings Co. bought Brazilian beermaker Schincariol Participacoes e Representacoes, and China Petrochemical Corp., or Sinopec, agreed to purchase a 30 percent stake in Galp Energia SGPS SA’s Brazilian unit.

Still, after a record-high volume of $161 billion in 2010, the volume of announced deals involving Brazilian companies tumbled to $99.6 billion this year as the Brazilian real strengthened while the country’s economy slowed.

“I’m glad to leave 2011 behind,” said Flavio Tavares Valadao, head of corporate finance at Banco Santander do Brasil SA, based in Sao Paulo. “Deals are difficult to make and companies are worried for the future.”

Brazilian Deals

Santander worked on Telefonica SA’s merger of its Brazilian fixed line unit, Telecomunicacoes de Sao Paulo SA’s with its mobile unit, Vivo Participacoes SA. The Spanish bank also advised Spain’s Iberdrola SA on the acquisition of Brazil’s Elektro Eletricidade & Servicos SA for 1.77 billion euros ($2.3 billion).

Dealmakers predict that technology, industrials, natural resources and health care will continue to be the sectors most actively consolidating, especially if European policy makers can prevent financial turmoil from spreading to more countries.

“Companies need to have more confidence that we aren’t going to have a break-up of the euro,” said Mark Shafir, global head of M&A at Citigroup Inc. “If you got that cleared up, then the first half of next year could be a lot better than the second half of 2011 has been.”

--With assistance from Aaron Kirchfeld in Frankfurt, Jeffrey McCracken in New York, Takahiko Hyuga in Tokyo, and Jacqueline Simmons and Matthew Campbell in Paris. Editors: Julie Alnwick, Jennifer Sondag

To contact the reporter on this story: Serena Saitto in New York at ssaitto@bloomberg.net

To contact the editor responsible for this story: Jennifer Sondag at jsondag@bloomberg.net

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U.S. Stocks Erase Yearly Gain as S&P 500 Moves Least Since 1947

December 31, 2011, 12:23 AM EST By Ksenia Galouchko and Lu Wang

Dec. 30 (Bloomberg) -- U.S. stocks fell this week, leaving the Standard & Poor’s 500 Index virtually unchanged for the year, as concern Europe’s debt crisis will weigh on the economy halted a two-year rally in equities.

The benchmark gauge for U.S. equities lost 0.04 point to 1,257.60 in 2011, the smallest annual change since 1947. Financial shares slid 1.3 percent in the week and 18 percent this year, the worst drop among 10 industries, as Bank of America Corp. tumbled 58 percent. Commodity producers fell 12 percent as a group. First Solar Inc. had the biggest drop in the S&P 500, losing 74 percent, followed by coal producer Alpha Natural Resources Inc. with a 66 percent loss.

Gauges of health-care companies, utilities and makers of household products and other consumer staples climbed more than 10 percent this year as investors bought companies whose profits are least-tied to economic growth. Cabot Oil & Gas Corp. in Houston rose 101 percent in 2011 for the gauge’s biggest rally, followed by pipeline owner El Paso Corp. and Sunnyvale, California-based medical device maker Intuitive Surgical Inc.

“It’s the year I’d like to forget because of all the tumult in the markets,” Brian Jacobsen, who helps oversee $209 billion as chief portfolio strategist at Wells Fargo Advantage Funds in Menomonee Falls, Wisconsin, said in a telephone interview. “The U.S. data has been looking better but it’s not just the matter of the U.S. data but what’s the outlook, and investors are still concerned about whether or not economic recovery is losing steam.”

European Concerns

The S&P 500 fell 0.6 percent this week as Spain’s widening budget deficit and a surge in the European Central Bank’s balance sheet stoked concern over the region’s debt crisis, offsetting better-than-expected U.S. consumer confidence and home sales data. The Dow Jones Industrial Average declined 76.44 points, or 0.6 percent, to 12,217.56, paring its 2011 gain to 5.5 percent.

The S&P 500 finished the year recording record price swings and correlations. The benchmark index started the year with a rally, rising as much as 8.4 percent to a three-year high by the end of April and extending its rebound from a March 2009 bear- market low to 102 percent.

The index tumbled throughout the summer as Congress and President Barack Obama struggled over U.S. deficit cuts, leading S&P to strip the nation of its AAA rating in August, and concern grew that the euro-area’s debt crisis was threatening the global economic recovery. The S&P 500 fell as much as 19 percent from April to its low for the year on Oct. 3.

Rising Correlations

Developments in Europe’s efforts to tame its debt crisis led to near-lockstep movement in equity prices. The 50-day correlation of S&P 500 stocks to gains or losses in the full index increased to a record 0.86 in October, according to data compiled by Westport, Connecticut-based Birinyi Associates Inc. A level of 1 would mean all 500 stocks moved together. Correlation was 0.78 on Dec. 30, 73 percent higher than its average since 1980.

The Dow alternated between gains and losses of more than 400 points on four days for the first time ever in August. Daily share swings in the S&P 500 averaged 2.2 percent that month, the most for any August since 1932, Bloomberg data show. The index moved an average of 1.9 percent a day from May through the end of the year, compared with the 50-year average of 0.6 percent before the collapse of Lehman Brothers Holdings Inc. in 2008.

Fund Withdrawals

Investors have been pulling money from mutual funds that focus on U.S. stocks for a fifth year. Outflows totaled $116 billion in the first 11 months of this year, the highest since 2008, according to data compiled by Bloomberg from the Investment Company Institute, a Washington-based trade group.

U.S. companies have beaten analyst profit estimates for 11 straight quarters as the country climbed out of the worst recession since the Great Depression. Earnings from S&P 500 companies are forecast to reach a record $98.79 a share this year, and climb 9.7 percent in 2012 and 12 percent in 2013, according to analysts’ estimates compiled by Bloomberg.

As stock prices failed to keep up pace with earnings, valuations reached levels cheaper than 72 percent of the time since 1954, according to data compiled by Bloomberg. The S&P 500 ended the year trading at 13.2 times reported earnings, 20 percent below the average multiple of 16.4, the data show.

‘Murky Outlook’

“If you look at balance sheets and cash flow statements, stocks are attractively valued, but they’re not incredibly cheap considering the murky outlook that we have from the political arena,” Jacobsen at Wells Fargo said. “People are clamoring for safer assets, the classic defensive sectors.”

The Morgan Stanley Consumer Index, which tracks drugmakers and food companies, added 0.7 percent this year, compared with a 16 percent loss in the firm’s cyclical measure of commodity producers and transportation providers.

The S&P 500 Dividend Aristocrats index, which follows companies that have raised payout for at least 25 consecutive years, returned 8.3 percent. The S&P 500 ended the year with a dividend yield of 2.1 percent, compared with a rate of 1.88 percent for 10-year Treasuries, and the index returned 2.1 percent in 2011 including reinvested dividends.

Bank of America plunged 58 percent to $5.56 in 2011, making it the worst performer in the Dow, as concern about mounting mortgage losses and a global economic slowdown weighed on the second-biggest U.S. lender. The decline erased almost $80 billion of shareholder value, and was the firm’s largest drop since a 66 percent plunge in 2008, when a U.S. bailout staved off a collapse.

Alcoa, First Solar

Alcoa Inc., largest U.S. aluminum producer, slumped 44 percent to $8.65 this year for the second-worst drop in the Dow as prices of the lightweight metal tumbled 18 percent.

First Solar tumbled 74 percent to $33.76. The biggest manufacturer of thin-film solar cells slashed its sales and profit forecasts for 2011 after ousting Rob Gillette as chief executive.

Alpha Natural declined 66 percent to $20.43 after acquiring Massey Energy Co. for $7.1 billion and announcing earnings that missed analysts’ estimates for the first two quarters of 2011.

Cabot Oil surged 101 percent to $75.90 this year. The company, which has fields in Pennsylvania, Texas and Oklahoma, projected output will rise as much as 55 percent next year. El Paso, based in Houston, rallied 93 percent to $26.57 in 2011 after agreeing to be bought by Kinder Morgan Inc. for $21 billion.

Intuitive Surgical jumped 80 percent to $463.01. The maker of a robotic system to perform surgery reported earnings that beat analyst estimates for the 10th straight quarter, according to data compiled by Bloomberg.

Netflix Inc. dropped 61 percent to $69.29. The video- streaming and DVD subscription service reduced its subscriber forecast and predicted losses in 2012.

--With assistance from Inyoung Hwang and Katia Porzecanski in New York. Editors: Michael P. Regan, Jeff Sutherland

To contact the reporters on this story: Ksenia Galouchko in New York at kgalouchko1@bloomberg.net; Lu Wang in New York at lwang8@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

View the original article here

Global M&A at Lowest Level Since Mid-2010

December 29, 2011, 10:54 PM EST By Serena Saitto

(Updates year-to-date figures starting in second paragraph.)

Dec. 29 (Bloomberg) -- The value of global takeovers dropped to the lowest level in more than a year this quarter, and dealmakers say Europe’s debt crisis may hamper a recovery in 2012 as cash-rich companies hold off on major purchases.

Mergers and acquisitions have slumped 15 percent from the previous three months to $464 billion, making the fourth quarter the slowest since mid-2010, according to data compiled by Bloomberg. For the year to date, announced takeover volume has risen just 3.2 percent to $2.26 trillion after regulatory hurdles scuttled AT&T Inc.’s bid for T-Mobile USA, which would have been 2011’s biggest deal.

Tightening credit markets, the risk of a euro-zone collapse and stock-market swings have deterred companies from pursuing transformational deals that would spur sales growth, M&A bankers said. Earlier in 2011, more favorable conditions emboldened acquirers to part with stockpiled cash, such as Johnson & Johnson’s $21.3 billion bid for Synthes Inc. and Express Scripts Inc.’s $29.1 billion offer for Medco Health Solutions Inc.

“There’s definitely pent-up demand for M&A as well- capitalized companies continue to focus on opportunities for strategic acquisitions,” said Yoel Zaoui, co-head of global M&A at Goldman Sachs Group Inc. “The key driver for M&A, however, is confidence, and in Europe, at the moment, that is lacking.”

Seven of the year’s 10 biggest deals were announced before August, when European markets fell the most since October 2008 amid a global stock rout and Standard & Poor’s cut the U.S. credit rating. Goldman Sachs is the top adviser on global takeovers for 2011, with $537 billion of deals this year, followed by JPMorgan Chase & Co. and Morgan Stanley, Bloomberg data show. This year’s growth in M&A volume compares with a 24 percent jump in 2010.

‘Wait and See’

Europe’s financial crisis will stifle lending, push the region into recession and weigh on the U.S. economy through early 2012, Jan Hatzius, Goldman Sachs’s chief economist, said on a Nov. 30 conference call. The euro zone’s unemployment rose to 10.3 percent in October, the highest since the currency began in 1999.

As the European crisis deepened, “dealmakers entered a wait-and-see mode, and that’s where we are now,” said Paul Parker, global head of M&A at Barclays Plc in New York. “Offsetting forces such as companies’ cash piles and low valuations should drive the recovery of M&A activity in the second half of the year.”

The MSCI World Index of about 1,600 companies trades for 12.6 times reported earnings, showing equities in developed economies are cheaper than they’ve been more than 95 percent of the time since 1995, according to data compiled by Bloomberg. Those companies are also sitting on $5.3 trillion in cash, the data show.

Antitrust Hurdles

Companies that did tap funds this year may not be able to complete their purchases as regulatory scrutiny threatens to derail more takeovers. Express Scripts’s offer for Medco, which would create the largest U.S. manager of pharmacy benefits for employers, insurers and union health plans, has prompted state inquiries over whether the combination would command too much market power.

AT&T abandoned efforts to buy T-Mobile USA from Deutsche Telekom AG this month after the U.S. Justice Department sued the companies in August, saying a combination would substantially reduce competition. Companies contemplating similar deals may hold off until the next presidential election in the hope that a Republican White House would make it easier to win approval for big transactions, said Jeffrey Silva, a Washington-based policy analyst with Medley Global Advisors.

European Deals

Deutsche Boerse AG and NYSE Euronext this week delayed the deadline for completing their merger until March 31 as the exchange operators try to persuade European Union regulators to approve the deal. While the U.S. cleared the combination, the EU has told the companies that concessions they offered to allay antitrust concerns don’t go far enough, two people familiar with the talks said this month.

Dealmaking involving European companies rose 2.6 percent this year, bolstered by the first half. For the fourth quarter, announced volume sank 13 percent from the previous three months to $162.6 billion. Valuations have also dropped, making the MSCI Europe Index even cheaper than the MSCI World Index at 10.8 times earnings. That may create opportunities for buyers from nations such as China.

“Chinese companies have been very successful at buying natural resources in emerging markets, and they are now very supportive of buying industrial assets in Europe,” said Thierry d’Argent, global head of M&A at Societe Generale SA in Paris.

Asia Pacific

French dairy-product maker Yoplait and the aviation unit of Royal Bank of Scotland Group Plc both attracted interest from Chinese bidders this year, according to people with knowledge of those negotiations.

The value of acquisitions involving Asia Pacific companies rose 4.2 percent to $701 billion this year, according to Bloomberg data. The biggest deal was Nippon Steel Corp.’s proposed takeover of Sumitomo Metal Industries for about $22 billion, including debt. That was followed by BHP Billiton Ltd.’s purchase of Houston-based oil and gas explorer Petrohawk Energy Corp.

Foreign buyers also spent more on Asia Pacific in 2011 than any year since 2007, according to the data. The largest overseas bid was SABMiller Plc’s $10 billion takeover of Australian beer maker Fosters Group Ltd., the data show. Among Asian countries, Japan overtook China as the biggest acquirer of foreign assets for the first time since 2008 after the March 11 earthquake spurred companies to retrench.

Japan’s Takeovers

“Japanese industries had been shrinking, and companies needed growth drivers,” said Kenji Fujita, head of M&A advisory at Mitsubishi UFJ Morgan Stanley Securities Co., the Tokyo-based investment banking venture of Morgan Stanley and Mitsubishi UFJ Financial Group Inc. “The earthquake raised the urgency for that.”

Japan’s Kirin Holdings Co. bought Brazilian beermaker Schincariol Participacoes e Representacoes, and China Petrochemical Corp., or Sinopec, agreed to purchase a 30 percent stake in Galp Energia SGPS SA’s Brazilian unit.

Still, after a record-high volume of $161 billion in 2010, the volume of announced deals involving Brazilian companies tumbled to $99.6 billion this year as the Brazilian real strengthened while the country’s economy slowed.

“I’m glad to leave 2011 behind,” said Flavio Tavares Valadao, head of corporate finance at Banco Santander do Brasil SA, based in Sao Paulo. “Deals are difficult to make and companies are worried for the future.”

Brazilian Deals

Santander worked on Telefonica SA’s merger of its Brazilian fixed line unit, Telecomunicacoes de Sao Paulo SA’s with its mobile unit, Vivo Participacoes SA. The Spanish bank also advised Spain’s Iberdrola SA on the acquisition of Brazil’s Elektro Eletricidade & Servicos SA for 1.77 billion euros ($2.3 billion).

Dealmakers predict that technology, industrials, natural resources and health care will continue to be the sectors most actively consolidating, especially if European policy makers can prevent financial turmoil from spreading to more countries.

“Companies need to have more confidence that we aren’t going to have a break-up of the euro,” said Mark Shafir, global head of M&A at Citigroup Inc. “If you got that cleared up, then the first half of next year could be a lot better than the second half of 2011 has been.”

--With assistance from Aaron Kirchfeld in Frankfurt, Jeffrey McCracken in New York, Takahiko Hyuga in Tokyo, and Jacqueline Simmons and Matthew Campbell in Paris. Editors: Julie Alnwick, Jennifer Sondag

To contact the reporter on this story: Serena Saitto in New York at ssaitto@bloomberg.net

To contact the editor responsible for this story: Jennifer Sondag at jsondag@bloomberg.net

View the original article here

U.S. Stocks Rise to Highest Level Since May on Manufacturing

July 01, 2011, 4:28 PM EDT By Rita Nazareth and Cecile Vannucci

July 1 (Bloomberg) -- U.S. stocks rose, sending benchmark indexes to their highest levels since May and the biggest weekly gains in two years, amid an unexpected pickup in American manufacturing growth.

Home Depot Inc., 3M Co. and Intel Corp. rallied at least 1.4 percent, pacing gains among companies most-dependent on economic growth. Apollo Group Inc. jumped 6.4 percent as the operator of for-profit schools reported earnings that beat analysts’ estimates. KB Home climbed 3.9 percent as the homebuilder said it doesn’t plan to issue equity. Eastman Kodak Co. tumbled 14 percent after a ruling on patent claims against Apple Inc. and Research In Motion Ltd. was postponed.

The Standard & Poor’s 500 Index rose 1.4 percent to 1,339.67 at 4 p.m. in New York. That extended its weekly rally to 5.6 percent, the most for the gauge since July 2009. The Dow Jones Industrial Average gained 168.43 points, or 1.4 percent, to 12,582.77 today. It also advanced the most in a week since July 2009.

“Clearly, today is good news with the manufacturing data,” said Michael Vogelzang, chief investment officer at Boston Advisors LLC, which manages $1.9 billion. “This is just a recovery off of a six-week very difficult period. People are putting the risk trade back on.”

The S&P 500 fell 1.8 percent in June, spurring the first quarterly loss in a year, on concern about Europe’s debt crisis and weaker-than-expected economic data. The index was still up 5 percent in 2011 through yesterday as government stimulus measures, takeovers and higher-than-estimated corporate earnings lifted investors’ confidence.

Stocks extended gains after a report showed that U.S. manufacturing unexpectedly expanded at a faster pace in June, a sign the industry is rebounding after shortages of parts and components from Japan slowed production. The Institute for Supply Management’s factory index rose to 55.3 last month from 53.5 in May. Economists estimated the index would drop to 52, according to the median forecast in a Bloomberg News survey. Figures greater than 50 signal expansion.

The ISM report was a positive surprise at a time when manufacturing growth is slowing from China to Europe, creating a dilemma for central bankers considering higher interest rates to combat inflation. China’s factory index fell to the lowest level since February 2009, while in the 17-nation euro area, a gauge slipped to an 18-month low. German manufacturing expanded at the weakest pace in 17 months, while Italy, Ireland, Spain and Greece contracted.

Greece’s Financing

Global stocks also rose. Greece may receive as much as 85 billion euros ($124 billion) in new financing, including a contribution from private investors, in a second bailout aimed at preventing default and ending the euro-region’s debt crisis, according to an Austrian Finance Ministry official.

“Greece is probably going to avert the default,” said Don Wordell, a fund manager for Atlanta-based RidgeWorth Capital Management, which oversees about $48 billion. “It’s a long process, but near-term, I believe they will resolve everything they need there.”

Stocks should rally during the second half of the year, sending the S&P 500 to 1,550 by the end of 2011, as corporate earnings grow and equities remain cheap, Deutsche Bank AG said.

Equities are less expensive, earnings will expand faster than the U.S. economy and there will be a pickup in growth for domestic cyclical industries such as financials, industrials and technology, Bankim “Binky” Chadha, Deutsche Bank’s New York- based chief U.S. equity strategist, said.

--With assistance from Victoria Stilwell in New York. Editors: Joanna Ossinger, Chris Nagi

To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net; Cecile Vannucci in New York at cvannucci1@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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Egypt Stocks Rally Most Since March on U.S., Saudi Arabia Aid

May 22, 2011, 10:19 AM EDT By Zahra Hankir and Ahmed Namatalla

May 22 (Bloomberg) -- Egypt’s shares gained the most in almost two months after the U.S. and Saudi Arabia pledged $6 billion for the North African country as it recovers from a popular uprising that ousted its president.

Orascom Telecom Holding SAE surged to the highest level since October after Deutsche Bank AG raised the country’s biggest mobile-phone operator to “buy.” Ezz Steel soared 6 percent. The EGX 30 Index climbed 3 percent, the most since March 29, to 5,405.52 at the 2:30 p.m. close in Cairo. The gauge has declined 24 percent so far this year.

Saudi Arabia’s $4 billion in aid will be granted in “soft loans, deposits and grants,” state-run Saudi Press Agency said yesterday, citing a statement by Egyptian Field Marshal Mohamed Hussein Tantawi, ruling military council head. U.S. President Barack Obama on May 19 pledged support, including $1 billion in loan guarantees, and canceling $1 billion in debt.

“The money coming in from the U.S. and Saudi Arabia is definitely affecting the market positively,” said Ashraf Akhnoukh, senior equity-sales trader at Cairo-based Commercial International Brokerage. “It gives the government space to breathe, regardless of where the money will be spent.”

The economy has suffered from inflation, a lack of investment, a budget deficit and decline in tourism since the uprising, Mohamed ElBaradei, a possible candidate for the Egyptian presidency, said in remarks to CNN’s “Fareed Zakaria GPS.” Economic growth may slow to 1 percent this year, the lowest rate in almost two decades, the International Monetary Fund said April 11. Former President Hosni Mubarak ceded interim authority to the Supreme Council of the Armed Forces on Feb. 11.

‘Buy’ Rating

The yield on Egypt’s 5.75 percent note due April 2020 tumbled 33 basis points, or 0.33 percentage point, to 5.86 percent on May 19, the least since Jan. 25, according to data compiled by Bloomberg. The rate gained one basis point to 5.87 percent on May 20.

The cost of protecting government debt against default for five years fell 30 basis points to 322 basis points on May 19, according to CMA prices in London. They were at 325 on May 20.

Orascom Telecom rallied 4.1 percent to 4.54 Egyptian pounds. The company’s global depositary receipts were assigned a 12-month price estimate of $4.20 at Deutsche Bank. One GDR represents five ordinary shares of Orascom Telecom, according to Bloomberg data. Ezz Steel, Egypt’s largest producer of the metal, soared to 10.91 pounds, the highest since April 6.

Saudi Gains

Saudi Arabia’s Tadawul All Share Index increased 0.3 percent. The Bloomberg GCC 200 Index of Persian Gulf stocks rose 0.1 percent and Oman’s MSM30 Index gained 0.3 percent. Kuwait’s measure increased 0.2 percent. Bahrain’s BB All Share Index lost 0.5 percent. In the United Arab Emirates, the DFM General Index and Abu Dhabi’s ADX General Index each dropped 0.3 percent.

Israel’s TA-25 Index slid 1.5 percent, the most since Feb. 24, to 1,273.97 after Obama and Israeli Prime Minister Benjamin Netanyahu made little effort to disguise their differences over the borders of a future Palestinian state after a two-hour meeting at the White House on May 20.

“There is a lack of conviction with buyers,” said Omri Weissman, head of stock trading at Excellence Nessuah Investment House Ltd. in Ramat Gan, Israel. “The whole thing that happened with Netanyahu and Obama on Friday looked bad on television and there’s a fear of what international investors will do tomorrow.”

The benchmark Mimshal Shiklit government bond due January 2020 gained, pushing the yield on the 5 percent bond down one basis point to 5.15 percent.

--With assistance from Gwen Ackerman in Tel Aviv. Editors: Claudia Maedler, Shanthy Nambiar

To contact the reporters on this story: Zahra Hankir in Dubai at zhankir@bloomberg.net; Ahmed A Namatalla in Cairo at anamatalla@bloomberg.net

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net

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