Stung by Losses, Main Street Investors Fail to Notice Market's Rebound

Although the memory of Lehman Brothers’ 2008 collapse may be fading on Wall Street, the shock still lingers on Main Street—and may again be hurting ordinary investors. A new survey of individual investors is a reminder of just how much we are primal creatures that remember the pain of loss more than the joy of gains.

As my colleague Roben Farzad recently reminded us, the Standard & Poor’s 500-stock index is on a tear, rallying on rising corporate profits (including Apple’s (AAPL) earnings bonanza) and optimism about further help from the Federal Reserve. Since its nadir in March 2009, the S&P 500 has more than doubled and is now at 1,463, not that far from the all-time high of 1,526 it reached in September 2007.

But ask Main Street investors, and you find that the market isn’t all roses: Memories of the steep losses from 2008 and 2009 still haunt, causing them to underestimate the market’s performance.

Franklin Templeton (BEN) surveys individual investors annually, asking how they perceive the market’s performance in the previous year. In 2010, 66 percent of investors said the S&P had fallen in 2009, when it actually had gained 26.5 percent—in a year following a steep 37 percent plunge. In 2011, 48 percent of investors said the markets were down over the course of 2010, when the S&P had risen more than 15 percent. And data just released on Sept. 18 shows that 53 percent of investors think the S&P declined in 2011, when the index actually rose 2 percent.

It’s fair to wonder if investors who don’t know whether the S&P made or lost money the prior year are sufficiently attuned to the market to risk cash in it. However, Franklin Templeton’s survey is also a marketing exercise—the company is a major mutual fund seller that would like to help guide you into investing.

The S&P has gained more than 16 percent so far this year, but that’s no reason to to think investors have suddenly overcome their post-crash trauma. They have continued pulling out of equities, taking more than $66 billion (XLS) out of the U.S. stock market in 2012.

This fear of getting burned again—“loss aversion,” in financial psychology lingo—means that Main Street is being hit by a double whammy. Not only did individual investors take a beating when the market tanked, they’re not benefiting from its rebound, either.

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Dimon, Blankfein Predict Market Rebound as Rivals Pull Back

January 19, 2012, 11:50 AM EST By Dawn Kopecki and Christine Harper

(Updates with today’s earnings reports, comment from Morgan Stanley’s finance chief starting in the second paragraph.)

Jan. 19 (Bloomberg) -- JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon and Goldman Sachs Group Inc. CEO Lloyd C. Blankfein predict Wall Street will rebound from 2011’s trading- revenue plunge. Rivals and analysts aren’t so sure.

Fourth-quarter earnings reported by the six largest U.S. banks show the industry suffered a third straight quarterly drop in combined trading and investment-banking revenue. On conference calls this week, analysts are pressing executives with a similar refrain: Is it a temporary rut or a lasting shift to smaller volumes, profits and pay?

“This is a big debate,” said Paul Miller, a former examiner for the Federal Reserve Bank of Philadelphia and an analyst at FBR Capital Markets in Arlington, Virginia. “A lot of bears are saying it is due to regulation and deleveraging, and some are saying it is cyclical. I think it’s some of both.”

Executives and analysts are focusing on whether stiffer regulations, capital rules and a weak economy may solidify a decline in revenue after the European debt crisis curbed trading volume and corporate dealmaking in last year’s second half. Credit Suisse Group AG, UBS AG and Royal Bank of Scotland Group Plc, which are all shrinking their investment banks, have announced plans to eliminate about 8,300 jobs since the start of November.

‘Snap Back’

“We’d all hoped that the headwinds to our business, including low levels of client activity, low interest rates, market volatility and political uncertainty around the world would subside,” Credit Suisse CEO Brady Dougan told analysts Nov. 1. The bank said that day it would cut about 1,500 jobs, in addition to 2,000 previously announced, and reorganize its securities unit after reporting third-quarter profit that missed analysts’ estimates. “It’s now clear, however, that these secular trends may persist for an extended period,” he said.

Dimon and Blankfein have since sought to reassure investors that markets and earnings from securities units will rebound.

“The world will snap back, and it will be a surprise, and it will be faster than people think,” Blankfein, 57, said at a Nov. 15 investor conference. Yesterday, Chief Financial Officer David Viniar echoed the remarks after the firm said trading revenue fell 25 percent from the third quarter to $3.06 billion.

“We are clearly in a cyclical downturn,” rather than a secular decline, Viniar said. “There is less activity that is cyclical. That will come back. I have no idea when, but it will come back.”

Dimon, 55, said investment banking is a volatile business in which volumes can swing by 50 percent daily.

‘Boom Again’

“It’s not a mystical thing,” he told reporters on a Jan. 13 conference call. “You just have to manage the business carefully and understand it’s going to have those kinds of swings. I don’t think the lower numbers are permanent. I think when things come back, these numbers will boom again.”

Equity issuance across the world fell to $163 billion in the last half of 2011, down 53 percent from the first six months, according to data compiled by Bloomberg. Corporate bond issuance also skidded amid the European crisis and a weaker- than-expected U.S. economy.

Government efforts to prevent banks from trading with their own money also have an impact that may last, said Charles Bobrinskoy, the Chicago-based vice chairman and director of research at Ariel Investments, which has about $5 billion under management and owns shares of New York-based Goldman Sachs, JPMorgan, Citigroup Inc. and Morgan Stanley.

“It’s a little of both -- it’s a little bit of secular, a little bit of cyclical,” he said.

Less Leverage

It doesn’t help that lawmakers and regulators are seeking to limit financial maneuvers that boosted or masked leverage in the past, such as off-balance-sheet conduits, variable-interest entities and collateralized debt obligations, said Richard Bove, an analyst at Rochdale Securities LLC in Lutz, Florida.

“There’s no more CLOs, CDOs, CDOs squared, CDOs cubed,” Bove said, referring to asset-linked securities and financial instruments at the heart of 2008’s U.S. financial crisis. “The leverage isn’t there and the market isn’t there. Banks can’t grow at the same rate.”

Citigroup reduced employees’ 2011 compensation to account for a temporary decline in trading volumes and investor appetite, CEO Vikram Pandit, 55, told analysts Jan. 17. The bank also restructured reserves and sold certain assets where it sees a permanent shift in the market, he said.

“There’s no magic answer,” Pandit said. “It’s very hard to parse out exactly what part of the activity we’re seeing is the cause of the cyclical situation versus how much is secular.”

BofA, Morgan Stanley

Citigroup, the third-biggest U.S. bank by assets, said Jan. 17 that net income dropped 11 percent as lower revenue from advising companies and trading securities led its investment bank to the first quarterly loss since 2008.

Goldman Sachs said fourth-quarter net income fell 58 percent, as revenue slid 30 percent. JPMorgan, the biggest U.S. bank, said last week that net income decreased 23 percent as investment bank earnings fell. San Francisco-based Wells Fargo & Co., which relies least on trading among the six banks, said a focus on loans helped soften a 4 percent drop in revenue. Its profit rose 20 percent.

Bank of America Corp. reported a second consecutive quarterly loss today in its global banking and markets division, which includes trading and underwriting operations. The entire company swung to a $1.99 billion profit from a year-earlier loss as mortgage charges eased. Morgan Stanley lost $250 million during the quarter, as trading volumes and mergers and acquisitions fell.

‘Difficult Question’

“It’s either a slow cyclical recovery or secular, and I don’t think it’s clear what it is,” Morgan Stanley Chief Financial Officer Ruth Porat said today in a telephone interview. “However you look at it, it’s a slower growth environment.” Morgan Stanley has reduced headcount to account for the slower-than-expected recovery, she said.

The grim outlook for trading was a recurring topic on Goldman Sachs’ analyst call.

“Your revenue weakness recently, are you saying none of that is due to secular factors?” Mike Mayo, an analyst at independent research firm CLSA in New York, asked Viniar during the bank’s conference call. “It’s all cyclical? There’s no structural change that’s hurting your revenues?”

The market doesn’t seem any worse than the fall of 2008 or when the bubble in technology stocks burst years earlier, Viniar said in response to analysts’ questions. Still, he would never be so bold as to rule out a lasting change, he said.

“We’ve all been doing this for a long time and we’ve seen downturns before,” he said. “Every time you’re in one it feels like it’s never going to end and this world is different now.”

“So is it cyclical? Is it secular?” Viniar said. “It’s a very difficult question to answer.”

--With assistance from Michael J. Moore and Donal Griffin in New York. Editors: David Scheer, Dan Reichl

To contact the reporters on this story: Dawn Kopecki in New York at dkopecki@bloomberg.net; Christine Harper in New York at charper@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net

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Peltz Irked at Slow Legg Mason Rebound

May 24, 2011, 6:53 AM EDT By Sree Bhaktavatsalam

May 24 (Bloomberg) -- Mark Fetting, chief executive officer of Legg Mason Inc., has disappointed the board of directors with the disclosure of costs that have delayed his goal of lifting profitability, said two people with knowledge of the matter.

Nelson Peltz and KKR & Co.’s Scott Nuttall, two directors whose firms own stakes in the Baltimore-based asset manager, have said they’re dissatisfied Fetting didn’t disclose until this month that expenses tied to bond division Western Asset Management will rise by $74 million this year, said the people, who asked not to be identified because the board’s deliberations aren’t public. The board is scheduled to meet today in New York, one of the people said.

Fetting, 55, has struggled to reverse client withdrawals after leading Legg Mason back to profitability from a $2 billion loss in fiscal 2009. Since Peltz, an activist investor and the biggest shareholder, joined the board in 2009, Fetting cut 350 jobs to lift operating margins to 30 percent, a goal the company said will be delayed because of the costs disclosed May 3.

“Anytime an executive has to go back on a promise, it’s a hit to credibility,” Mike Morris, a senior analyst at Atlanta- based Invesco Ltd., Legg Mason’s third-biggest shareholder, said in a telephone interview. “The turnaround is progressing nicely, but the process could have been managed better.”

Legg Mason has lost 11 percent in New York Stock Exchange composite trading since May 2, the day before the costs were reported. The shares are down 54 percent since Fetting was named CEO on Jan. 28, 2008, even after tripling from their March 9, 2009, lows.

Peltz’s ‘Standstill’

Fetting declined to comment, as did Anne Tarbell, a spokeswoman for Peltz. Nuttall didn’t return calls seeking comment. Kristi Huller, a spokeswoman for KKR, declined to comment.

Peltz’s Trian Fund Management LP, which owned 7.4 percent of Legg Mason’s shares as of March 31, is known for pushing companies to increase their value by cutting costs or merging. Peltz helped spur Cadbury Plc’s 2008 spinoff of Dr Pepper Snapple Group Inc.

He joined the Legg Mason board in October 2009, under an agreement that prevents him from raising his stake above 9.9 percent during a “standstill period” that could end as early as March 31, 2012. The accord prohibits him from forming syndicates or partnerships to amass more voting interests, or from forcing a sale or merger of any investment affiliates.

‘Patience Wears Out’

“If I were a board member, I would be encouraged with some signs of progress, but I couldn’t conclude that the turnaround has been completely successful,” Jeff Hopson, an analyst with Stifel, Nicolaus & Co. in St. Louis, said in an interview. “People’s patience wears out.”

Fetting told investors last year that he would expand the firm’s operating margin with job cuts that would save $130 million to $150 million a year.

He and Chief Financial Officer Pete Nachtwey told analysts and shareholders this month that its bond unit will keep a larger portion of its revenue, as performance rebounded and redemptions abated at Western Asset. The unit previously paid some of its quarterly revenue to the parent company to cover costs from a bailout of money funds it inherited through the December 2005 acquisition of Citigroup Inc.’s investment unit, which was integrated into the bond division.

‘Surprise to Most’

The change means Legg Mason won’t reach Fetting’s stated goal of expanding operating margins by March 2012 to 30 percent from 23 percent as of March 31. Nachtwey said on the call that while the company knew about the increase in compensation expenses “for quite some time,” it doesn’t discuss the impact on earnings until the start of the fiscal year.

“It came as a surprise to most of us,” Michael Kim, an analyst with Sandler O’Neill & Partners LP in New York, said in an interview. “While it’s going to be a headwind for margin expansion, because they are making this commitment to Western, it will allow them to retain their employees and improve growth prospects,” said Kim, who rates the shares a “buy.”

Fetting took over from Legg Mason’s founder, Raymond “Chip” Mason, in January 2008, after stock funds managed by Bill Miller trailed rivals for two years in a row and the firm started to see trouble signs in the former Citigroup money funds. The money funds had invested as much as $10 billion in structured investment vehicles that plunged as investors shunned mortgage-linked debt in 2008.

Capital Injection

Legg Mason sold $1.25 billion in notes to New York-based buyout firm KKR in January 2008 to increase its capital after spending cash to prop up its money funds. KKR’s Nuttall joined Legg Mason’s board as part of that transaction.

Mason started Mason & Co. in 1962 and eight years later merged it with Legg & Co., whose predecessor firm was founded as a regional brokerage in 1899. Mason expanded the asset- management side of the business by making acquisitions such as the 1986 purchase of bond investor Western Asset, the 2001 deal for small-cap manager Royce & Associates and the 2005 pickup of hedge-fund manager Permal Group Ltd.

Mason led the firm’s largest deal by swapping Legg Mason’s brokerage business for Citigroup’s investment unit. Citigroup’s bond and money funds were folded into Western Asset, while its stock funds were organized into a new unit called ClearBridge Advisors.

‘Fetting’s Tenacity’

Fetting, who was previously responsible for Legg Mason’s mutual funds and managed accounts, spent his first year as CEO bolstering the money funds, booking $1.69 billion in after-tax costs to remove the securities from the portfolios.

“Legg Mason was in the midst of integrating Citi and then came the catastrophic market, so it was a double-whammy,” Burton Greenwald, an independent consultant in Philadelphia, said in an interview. “The fact that the firm is alive, well and appears to be thriving is a tribute to Mark Fetting’s tenacity.”

After ridding the funds of the troubled debt in early 2009, Fetting said he would turn to reversing the redemptions that started in late 2007 and intensified with stock and bond fund losses amid the collapse of Lehman Brothers Holdings Inc. in September 2008. Assets tumbled from a peak of about $1 trillion at the end of 2007 to $672 billion at the end of April. After pulling a net $134 billion in 2008, investors withdrew $177.5 billion in 2009 and 2010 combined.

Redemptions Slow

Redemptions abated from a peak of $77 billion in the fourth quarter of 2008 to $8.7 billion in the three months ended March 31, the lowest amount in six quarters. Western Asset’s $6.7 billion in withdrawals was the smallest tally since December 2007, as 75 percent of the unit’s assets were in funds that beat benchmarks over the previous one, three, five and 10 years, according to the firm. As of March 31, about three-fourths of Legg Mason’s long-term U.S. assets were in funds beating their respective peers over the past three years, compared with 68 percent a year ago, the firm said.

Performance hasn’t picked up at the stock-fund division headed by Miller. His $3.9 billion Legg Mason Capital Management Value Trust fund, which beat the Standard & Poor’s 500 Index for a record 15 straight years through 2005, trailed the U.S. market benchmark in four of the last five years.

The fund averaged annual declines of 6.1 percent in the five years ended May 20, worse than 97 percent of its peers that invest in a blend of large-company stocks, according to data from Morningstar Inc. in Chicago.

--Editors: Josh Friedman, Christian Baumgaertel

To contact the reporter on this story: Sree Bhaktavatsalam in Boston at sbhaktavatsa@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net

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European Stocks Rise; BHP Billiton Gains as Commodities Rebound

May 24, 2011, 10:40 AM EDT By Adria Cimino

May 24 (Bloomberg) -- European stocks advanced, with the benchmark Stoxx Europe 600 Index rebounding from a one-month low, as commodities rallied and a report showed that U.S. new- home sales increased more than forecast last month.

BHP Billiton Ltd., the world’s biggest mining company, and Rio Tinto Group, the third largest, both gained at least 2.5 percent as metal prices rose. Travis Perkins Plc climbed 4 percent after Jefferies Group Inc. recommended buying the company’s shares.

The Stoxx 600 rose 0.5 percent to 276.27 at 3:16 p.m. in London. The index fell last week after Greek 10-year bond yields climbed to a record and Fitch Ratings cut Greece’s credit rating to B+, four notches below investment grade. The Stoxx 600 yesterday erased its gains for the year after Spain’s ruling Socialist Party suffered its worst election defeat in 30 years and Standard & Poor’s said it may downgrade Italy’s debt.

“Even if economic growth isn’t as strong, in the long term commodity stocks always tend to go higher,” said Jacques Porta, a Paris-based fund manager at Ofi Patrimoine, who helps oversee about $425 million in stocks. “I’m overweight on them. Everyone is. It’s a story of supply and demand. Emerging markets are big consumers of commodities.”

German business confidence remained unexpectedly unchanged in May as booming exports and rising company spending boosted economic growth. The Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, held at 114.2, the same as in April. Economists had forecast a decline to 113.7, the median of 24 predictions in a Bloomberg News survey showed.

U.S. Home Sales

In the U.S., a Commerce Department report showed that purchases of new houses rose in April to the most so far this year. Sales climbed 7.3 percent to a 323,000 annual pace last month. The median estimate in a Bloomberg News survey of economists called for sales at a 300,000 annual rate, unchanged from the prior month. Housing prices rose from a year earlier.

National benchmark indexes gained in 16 of the 18 western European markets. France’s CAC 40 Index climbed 0.5 percent. Germany’s DAX Index and the U.K.’s FTSE 100 Index increased 0.9 percent.

Of the 312 Stoxx 600 companies that have reported earnings since April 11, 58 percent have beaten analysts’ estimates, according to data compiled by Bloomberg.

BHP, Rio, Xstrata

BHP Billiton climbed 2.5 percent to 2,361 pence as copper, lead, zinc and aluminum advanced in London. Rio Tinto increased 2.7 percent to 4,142.5 pence and Xstrata Plc rose 2.8 percent to 1,395 pence. A gauge of basic-resource shares was the best performing of the 19 industry groups in the Stoxx 600. Commodities rebounded from the biggest drop in almost two weeks after Goldman Sachs Group Inc. said it’s turning “more bullish” on raw materials.

Anglo American Plc increased 2.4 percent to 2,897.5 pence. Kazakhmys Plc, a Kazakh copper miner listed in London, gained 3.1 percent to 1,244 pence. Antofagasta Plc, the copper producer controlled by Chile’s Luksic family, jumped 4.1 percent to 1,207 pence.

Travis Perkins jumped 4 percent to 1,041 pence. The shares were initiated with a “buy” rating at Jefferies, which said the stock has 30 percent upside potential.

Arkema SA surged 3.5 percent to 74.31 euros. The stock was raised to “overweight” from “neutral” at HSBC, which said its valuation is the cheapest among European chemical companies.

Mitie, Gas Natural

Mitie Group Plc rallied 5.1 percent to 231.6 pence, its second day of gains, after the company yesterday reported results that showed “an encouraging pick-up in organic growth,” according to a report from UBS AG analyst Alex Hugh, who raised his price estimate on the shares 7.7 percent to 280 pence each. Royal Bank of Scotland Group analyst Kean Marden wrote in a report today that the company’s organic sales growth guidance may be “conservative.”

Gas Natural SDG SA added 1.7 percent to 13.14 euros. The company plans to increase its capital and give Algeria’s national oil company Sonatrach a 10 percent stake as part of a compensation deal, Cinco Dias reported, citing unidentified people close to the matter.

Gas Natural will make an additional payment in cash, settling the remaining money it owes Sonatrach in future price accords for gas supplies, the newspaper said. The Spanish company said it has yet to reach an agreement with Sonatrach.

Greek Privatizations

Greek stocks advanced after the government announced a stepped-up plan to sell holdings in companies including Hellenic Telecommunications Organization SA.

Hellenic Telecom soared 4.2 percent to 6.76 euros. Hellenic Postbank SA surged 5.7 percent to 2.97 euros after the government said it may sell all its 34 percent stake in the lender this year.

Marks & Spencer Group Plc declined 2.4 percent to 387.5 pence. The U.K.’s largest clothing retailer said the outlook for the economy remains challenging as consumers continue to experience a squeeze on their disposable incomes. The company reported fiscal full-year underlying pretax profit of 714.3 million pounds ($1.2 billion). That beat the average analyst estimate of 711 million pounds.

Renewable Energy Corp. slumped 14 percent to 13.13 kroner, its largest drop since February 2010, after the company forecast that it will make a smaller second-quarter operating profit than it did in the first quarter. Renewable Energy also said it will cut its output of wafers, cells and modules in response to current market conditions.

--Editor: Will Hadfield

To contact the reporter on this story: {Adria Cimino} in Paris at acimino1@bloomberg.net

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

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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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