U.S. Stocks Advance Amid Dell Earnings as Commodities Rebound

May 18, 2011, 12:59 PM EDT By Rita Nazareth

May 18 (Bloomberg) -- U.S. stocks rose, snapping a three- day drop for benchmark indexes, as earnings at companies including Dell Inc. beat estimates and commodities rebounded.

Dell, the world’s second-largest computer maker, climbed 5.2 percent as corporate spending helped the company withstand a slump in consumer demand. Teen retailer Abercrombie & Fitch Co. added 2.5 percent as profit also beat estimates. Freeport- McMoRan Copper & Gold Inc. and Halliburton Co. rose at least 3.5 percent as commodities climbed for the first time in three days amid signs of increasing demand from emerging markets.

The Standard & Poor’s 500 Index advanced 0.5 percent to 1,335.93 at 12:36 p.m. in New York, after losing 1.5 percent over the last three days. The Dow Jones Industrial Average increased 33.07 points, or 0.3 percent, to 12,512.65 today. Energy shares led gains in the S&P 500 as oil rallied after an unexpected decline in inventories.

“I see a lot of green on my screen,” said Timothy Ghriskey, chief investment officer at Solaris Asset Management in Bedford Hills, New York, which manages $2 billion. “We got Dell as a turnaround story. Commodities were looking for an opportunity to bounce and traders will take advantage of it. Europe has somewhat kept a lid on the market. If we see defaults, it probably does ripple through the markets. Still, the defaults are likely to occur in smaller markets with limited global economic impact.”

Damped Optimism

The S&P 500 yesterday fell to a one-month low as a reduced sales forecast at Hewlett-Packard Co. and an unexpected decline in housing starts damped optimism about the economic recovery. The measure slid 2.5 percent through yesterday since climbing to an almost three-year high on April 29 amid concern about Europe’s debt crisis.

Still, the benchmark gauge advanced 5.7 percent in 2011 through yesterday amid government stimulus measures and higher- than-estimated corporate earnings. More than two-thirds of the 446 companies that reported results since April 11 topped the average analyst earnings projection, according to data compiled by Bloomberg.

“We’ve got good earnings surprises,” said Jeffrey Saut, chief investment strategist at Raymond James & Associates in St. Petersburg, Florida, who helps manage $275 billion. “The numbers will continue to be a lot stronger than people think. Of the developed world, I like the U.S. by far. From a 50,000 foot level, I’m avoiding Europe because they have a huge bunch of problems.”

‘Magical Thinking’

U.S. Treasury Secretary Timothy F. Geithner said budget deficits threaten to erode the nation’s economy and security and can’t be reduced with “magical thinking.” Geithner also said Europe has the capability to handle the region’s debt crisis.

“They just have to do it,” he said on a panel in New York after a screening of the HBO film “Too Big to Fail” yesterday.

European Central Bank officials ruled out a Greek debt restructuring, clashing with political leaders over a solution to the sovereign financial crisis.

“A Greek debt restructuring is not the appropriate way forward -- it would create a catastrophe” because it would damage the banking system, ECB Executive Board member Juergen Stark said today in Lagonissi, Greece. Fellow board member Lorenzo Bini Smaghi said in Milan that “a solution for reducing debt but not paying for it will not work.”

Squeeze More Profit

Dell climbed 5.2 percent to $16.73. It’s the second straight quarter that the company’s results outshined those of rival Hewlett-Packard Co. A slowdown in home-computer sales has roiled industry leader Hewlett-Packard, which cut its annual sales forecast yesterday. While Dell also saw its consumer revenue drop, the company said it was able to squeeze more profit out of each sale.

Abercrombie & Fitch rose 2.5 percent to $75.02. The teen retailer reported first-quarter earnings from continuing operations of 27 cents a share. On average, the analysts surveyed by Bloomberg estimated profit of 13 cents a share.

Gauges of energy and raw-materials producers rallied at least 1.6 percent, the two biggest gains within 10 S&P 500 groups. The S&P GSCI Index of 24 raw materials gained as much as 3 percent. Oil futures advanced 3.6 percent to $100.41 a barrel after Energy Department data showed an unexpected drop in U.S. inventories as refineries bolstered operating rates and imports declined.

Freeport, the world’s largest publicly traded copper producer, advanced 3.5 percent to $48.47. Halliburton added 3.8 percent to $47.05.

Staples Tumble

Staples Inc. tumbled 16 percent to $16.49. The office- supply retailer forecast 2011 earnings of $1.45 a share at most. On average, the analysts surveyed by Bloomberg estimated profit of $1.53 a share.

U.S. stocks are more vulnerable to a rising dollar than at any other time in the past four decades, according to Myles Zyblock, chief institutional strategist at RBC Capital Markets.

Through the first four months of the year, the Dollar Index dropped 7.7 percent. The indicator of the dollar’s value against the currencies of six major U.S. trading partners ended April at its low for the year. Since then, the index has risen as much as 3.9 percent.

“The dollar rally is a headwind” that may cause stocks to drop in the next three months, Zyblock wrote today in a report. By his reckoning, the so-called inverse correlation between the currency’s value and shares is the strongest since 1971.

Disappointing economic reports also indicate share prices are poised to fall, the report said. He cited a Citigroup Inc. index that compares indicators with estimates for 10 of the largest economies. The gauge fell last week to minus 23.7, its lowest reading in two years.

Zyblock recommended that clients add to investments in health care and consumer staples, such as food, beverages and tobacco. He also suggested that they reduce holdings of energy and raw-material producers, the “most susceptible to further increases in the dollar and/or global economic growth scares.”

--With assistance from David Wilson in New York. Editors: Joanna Ossinger, Jeff Sutherland

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

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

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