U.S. Stocks Recover From Rout; S&P 500 Gains, Led by Oil Shares

U.S. Stocks Recover From Rout; S&P 500 Gains, Led by Oil Shares
By Michael Patterson
Trader Michael Naples in the S&P 500 pit in Chicago Aug. 10 (Bloomberg) -- U.S. stocks recovered from a global sell-off, erasing most of the Dow Jones Industrial Average's 213- point drop, after the Federal Reserve added $38 billion to banks to stem a crisis of confidence in credit markets.
Viacom Inc., Nike Inc. and Gap Inc. led a late-session turnaround in consumer shares. Exxon Mobil Corp. and Chevron Corp. paced gains in energy companies that helped the Standard & Poor's 500 Index bounce back from a 1.6 percent decline to complete its first weekly advance in a month.
The S&P 500 and Dow initially tumbled, following markets in Europe and Asia lower on concern widening losses for banks and hedge funds may hurt economic growth and earnings. The Fed made its biggest injection to the financial system since the 2001 terrorist attacks, joining central banks in Europe, Japan, Australia and Canada in attempting to avert a credit crunch.
The S&P 500 rose 0.55 to 1453.64 after a 3 percent retreat yesterday. The Dow lost 31.14, or 0.2 percent, to 13,239.54. The Nasdaq Composite Index slipped 11.6, or 0.5 percent, to 2544.89.
``One thing that's on your side as an investor is that the two largest printing presses on earth for money, the central bank of Europe and the Fed here, are stepping into the system,'' said James Swanson, chief investment strategist at MFS Investment Management in Boston, which oversees $190 billion.
For the week, the S&P 500 climbed 1.4 percent and the Dow average gained 0.4 percent. The Nasdaq increased 1.3 percent.
Viacom, the owner of MTV and Paramount Pictures, added $1.87 to $38.92. Nike Inc., the world's largest athletic-shoe maker, advanced $1.88 to $55.78. Gap Inc., the biggest U.S. clothing retailer, rose $1.09 to $16.75.
Energy Rally
A gauge of energy shares in the S&P 500 increased 1.2 percent today. Exxon, the world's biggest oil company, added 91 cents to $84.51. Chevron, the No. 2 U.S. oil company, climbed $2.31 to $83.42.
Marathon Oil rose $2.62 to $51.86. Citi Investment Research raised its recommendation on the refiner to ``buy'' from ``hold,'' saying the company's oil and gas reserves may double. Analysts including Doug Leggate also upgraded shares of refiners Tesoro Corp. and Valero Energy Corp., saying the ``sell-off in refining stocks has brought risk-reward back into balance.''
Tesoro, down 14 percent since June, added $2.30 to $49.30. Valero, down 6.7 percent during the same period, gained $1.35 to $68.90.
Rate-Cut Speculation
The Fed said it provided the $38 billion in reserves and pledged further funds ``as necessary'' to ``facilitate the orderly functioning'' of markets. The European Central Bank loaned 61.05 billion euros ($83.6 billion). Central banks in Japan and Australia also added funds as money-market rates rose around the world.
Fed funds futures indicate traders are betting on a quarter percentage point rate cut at policy makers' next meeting on Sept. 18. JPMorgan Chase & Co., one of the 21 securities firms that trades directly with the Fed, said there's a ``genuine possibility'' the central bank will lower interest rates between meetings if financial markets worsen.
``The stress generated by a repricing of credit risk is testing the resiliency of the global financial system,'' JPMorgan Chief Economist Bruce Kasman wrote in a report today. The third- largest U.S. bank's shares added 8 cents to $44.25.
Fannie Mae climbed 53 cents to $66.46. The biggest U.S. mortgage-finance company requested permission to increase its investments in home loans and mortgage bonds by as much as $72 billion to help provide liquidity in the credit markets, Chief Executive Officer Daniel Mudd said.
After the close of U.S. exchanges, the Office of Federal Housing Enterprise Oversight issued a statement, rejecting the request. Fannie Mae fell $1.46 to $65 in extended trading.
UnitedHealth Gains
Shares of U.S. managed-health companies, led by UnitedHealth Group Inc., gained after an analyst said the stocks were ``undervalued.'' Carl McDonald, an analyst with CIBC World Markets in New York, said that industry shares hadn't traded at so low a multiple of projected earnings since 2004.
UnitedHealth gained $1.15 to $47.48. Aetna Inc. rose $1.74 to $48.69. Cigna Corp. climbed $2.29 to $47.40.
Stocks opened the day lower after Countrywide Financial Corp., the biggest U.S. mortgage lender, said mortgage-market disruptions may crimp profit and it may have difficulty obtaining financing from creditors. Countrywide's shares sank 80 cents to $27.86 after falling as much as $3.95.
Washington Mutual Inc. dropped 81 cents to $35.95. The biggest U.S. savings and loan said in its own filing that liquidity in the market for mortgages made to borrowers below the top credit grade had ``diminished significantly.''
``People are unsure how deep all this goes,'' said Kurt Brunner, who helps manage $1.5 billion at Swarthmore Group Inc. in Philadelphia. ``It's shoot first and ask questions later.''
Brokerages Decline
Goldman Sachs Group Inc., the world's largest securities firm, dropped $1.75 to $180.50. Merrill Lynch & Co., the third- biggest U.S. securities firm, retreated 56 cents to $74.12.
The U.S. Securities and Exchange Commission, concerned that Wall Street firms may have concealed the extent of the subprime- mortgage rout, will examine how the brokerages accounted for the securities as they plummeted, a person with direct knowledge of the inquiry said. Lori Richards, director of the SEC inspections office, didn't reply to a phone call and e-mail seeking comment.
A gauge of U.S. stock market volatility climbed to the highest since April 2003. The Chicago Board Options Exchange Volatility Index gained 6.9 percent to 28.30. Higher readings in the so-called VIX, derived from prices paid for S&P 500 options, indicate traders expect bigger share-price swings in the next 30 days.
Investors said the drop in some shares early in the day may have been exacerbated as hedge funds that borrowed money to fund investments were forced to raise cash to meet margin requirements or repay investors and lenders.
`Forced to Sell'
``We're going to find out that several hedge funds were forced to sell their highest-quality positions,'' said Dan Veru, who helps manage $3 billion at Palisade Capital Management in Fort Lee, New Jersey. ``These funds aren't selling for fundamental reasons, they're selling because they have to.''
James Simons, whose computer-driven $29 billion Renaissance Institutional Equities Fund has fallen 8.7 percent so far in August, said in a letter to investors that other hedge funds have been forced to sell positions, short-circuiting statistical models based on the relationships among securities.
Global Alpha
After the close of U.S. exchanges, people familiar with Goldman Sachs' $8 billion Global Alpha hedge fund said it has fallen 26 percent so far this year. Goldman's shares fell 50 cents to $180 in extended trading.
State Street Corp. declined $2.53 to $68.03. Punk Ziegel & Co. lowered its recommendation on the world's biggest institutional money manager to ``market perform'' from ``buy.'' Analyst Richard Bove said declines in stock, bond and ``alternative investment'' markets will slow earnings growth through 2009.
MGIC Investment Corp. tumbled $5.58, or 13 percent, to $36.21 for the largest drop in the S&P 500. JPMorgan recommended selling shares of the largest U.S. mortgage insurer amid uncertainty over prospects for its purchase of Radian Group Inc, the third-biggest mortgage insurer.
Ambac Financial Group Inc. declined $3.36 to $66.14. The world's second-largest bond insurer said its holdings of collateralized debt obligations, or securities backed by pools of debt, are about $71.1 billion. CDOs package pools of securities backed by collateral that can include mortgages. The value of subprime mortgage assets has slumped in the past two months after defaults on home loans rose to a 10-year high.
Economy Watch
In economic reports, prices of goods imported into the U.S. climbed more than forecast in July on higher oil costs. The 1.5 percent increase, the biggest since March, compares with a rise of 1 percent forecast by economists in a Bloomberg survey. Prices excluding petroleum gained 0.2 percent, the fifth straight advance.
Nvidia Corp. fell $2.14 to $43.99 after the world's second- largest producer of computer-graphics chips said third-quarter sales will increase between 5 percent and 7 percent, with an inventory shortage and limited manufacturing constraining growth. Investors were looking for a forecast of at least 10 percent sales growth, Caris & Co. analyst Nicholas Aberle said.
Wyeth lost $2.99 to $46.59 after U.S. regulators rejected the drugmaker's experimental antipsychotic bifeprunox for schizophrenia. The Food and Drug Administration needs a study showing the drug works before the agency will consider approving the pill, Wyeth said.
Some 2.5 billion shares changed hands on the New York Stock Exchange, 48 percent more than the three-month daily average.
The Russell 2000 Index, a benchmark for companies with a median market value of $639 million, gained 0.5 percent to 788.78. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, was little changed at 14,641.03.

Aetna Inc. (AET US)Ambac Financial Group Inc. (ABK US)Chevron Corp. (CVX US)Cigna Corp. (CI US)Countrywide Financial Corp. (CFC US)Exxon Mobil Corp. (XOM US)Fannie Mae (FNM US)Gap Inc. (GPS US)Goldman Sachs Group Inc. (GS US)Marathon Oil Corp. (MRO US)Merrill Lynch & Co. (MER US)MGIC Investment Corp. (MTG US)Nike Inc. (NKE US)Nvidia Corp. (NVDA US)State Street Corp. (STT US)Tesoro Corp. (TSO US)UnitedHealth Group Inc. (UNH US)Valero Energy Corp. (VLO US)Viacom Inc. (VIA/B US)Washington Mutual Inc. (WM US)Wyeth (WYE US)
To contact the reporter on this story: Michael Patterson in New York at mpatterson10@bloomberg.net .
Last Updated: August 10, 2007 18:14 EDT

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