U.S. Stocks Gain, Ending Four-Week Slump, on Hopes for Bailout

Feb. 7 (Bloomberg) -- U.S. stocks gained, snapping four weeks of declines, on speculation the deteriorating economy would force Congress to reach a compromise on President Barack Obama’s economic stimulus package.

Intel Corp. and Microsoft Corp. climbed more than 14 percent as the Senate debated the president’s plan to revive job growth and consumer spending. MasterCard Inc. gained 20 percent and drugmaker Merck & Co. climbed 7.8 percent after beating earnings estimates. Stocks also rallied in anticipation of Treasury Secretary Timothy Geithner’s Feb. 9 announcement of a bailout plan for the banking industry.

“The financial rescue is key, because it’s impossible to have a normally functioning economy without a functioning financial system,” said Bill Stone, who helps oversee about $56 billion as chief investment strategist at PNC Wealth Management in Philadelphia. “A lot of what was holding the market back was the performance of the financials. If you get them out of the way, you could see a decent-sized rally.”

The Standard & Poor’s 500 Index rose 5.2 percent to 868.60 this week, reducing its 2009 decline to 3.8 percent. The Dow Jones Industrial Average added 279.73 points, or 3.5 percent, to 8,280.59. Stocks rallied even after the unemployment rate climbed to 7.6 percent, the highest level since 1992.

The S&P 500 has climbed 15 percent from the 11-year low it reached Nov. 20. The benchmark dropped 38 percent last year, its worst performance since the Great Depression. The S&P 500, Dow and MSCI World Index posted their steepest January losses as companies reported disappointing earnings and the U.S. economy shrank at the fastest pace in 26 years.

Highest Since 1974

Payrolls tumbled in January, with millions more Americans likely to lose their jobs before stimulus and emergency-lending programs temper the economy’s slide. Payrolls fell by 598,000, the biggest monthly decline since December 1974. Losses spanned almost all industries, from construction and manufacturing to retailing, trucking, media and finance.

The U.S. Senate is slated to vote early next week on an economic stimulus package totaling at least $780 billion after lawmakers reached a compromise over the size of the plan late yesterday, after the stock market closed. The House passed its own version, worth $819 billion, last week.

Geithner will announce the Treasury’s plan for supporting an “effective and lasting economic recovery.” Officials plan a combination of approaches for their overhaul of the $700 billion Troubled Asset Relief Program.

Intel, Technology Gain

Along with further injections of taxpayer funds into financial firms, the strategy is likely to include guarantees for illiquid assets on banks’ balance sheets, people familiar with the matter have said.

Intel, the world’s largest computer-chip maker, climbed 14 percent to $14.73. Microsoft, the biggest software maker, climbed 15 percent to $19.66.

Technology stocks climbed 9.7 percent, the most among 10 industries in the S&P 500. Akamai Technologies Inc. gained 29 percent to $17.41 after the largest supplier of software and services that speed up the delivery of Web sites posted better- than-estimated profit. Cisco Systems Inc., the world’s biggest maker of computer-networking equipment, increased 14 percent to $17.04 even after saying sales are likely to fall 15 percent to 20 percent in the current quarter.

MasterCard, the world’s second-largest credit-card network, gained 20 percent to $162.50. Chief Executive Officer Robert Selander cut expenses to reach profit targets jeopardized by the U.S. economic slowdown.

Job Cuts Boost Profit

Merck, the third-largest U.S. drugmaker, climbed 7.8 percent to $30.77 after savings from job cuts boosted profit. Schering- Plough Corp. gained 12 percent to $19.75. The maker of the Vytorin and Zetia drugs, for which it shares revenue with Merck, said earnings were helped by cost reductions and added sales from an acquisition.

Financial stocks in the S&P 500 fell 3.3 percent in the first three days of the week on concern about the health of Bank of America Corp., which tumbled 29 percent through Feb. 4. The industry surged on Feb. 5 and 6, giving the group a 6 percent gain for the week. Bank of America finished with a 6.8 percent retreat.

Bank of America Chief Executive Officer Kenneth Lewis said the economy is still deteriorating and that conditions are likely to improve later this year.

“Things are worsening as we speak,” Lewis said in an interview on CNBC yesterday. “We think they will stabilize sometime in the second half and we will see growth in 2010.”

Goldman Sachs Climbs

Goldman Sachs Group Inc., the biggest U.S. securities firm until becoming a bank-holding company in September, climbed 20 percent to $96.57. Morgan Stanley rose 13 percent to $22.87. Citigroup Inc. increased 10 percent to $3.91.

State Street Corp. gained 31 percent to $30.49 after the world’s largest money manager for institutions all but eliminated its dividend and cut 2008 bonuses to increase capital without diluting the ownership of existing shareholders.

Wal-Mart Stores Inc., Target Corp., Macy’s Inc. and Limited Brands Inc. each climbed at least 5 percent after reporting January sales that exceeded estimates as retailers offered discounts to lure U.S. consumers during the longest recession in a quarter century.

Humana Inc. surged 17 percent to $44.55. The second-biggest provider of U.S.-funded health insurance reported fourth-quarter earnings that beat analysts’ estimates and said higher prices for elderly customers will help the company meet its 2009 profit forecast.

Narrowest Loss

D.R. Horton Inc. gained the most in the S&P 500, surging 53 percent to $9.14, after reporting its narrowest loss in five quarters. Homebuilders in the index rose 32 percent after pending home sales increased for the first time since August.

General Electric Co. fell 8.5 percent to $11.10 and reached the lowest price since 1995 after Chief Executive Officer Jeffrey Immelt said he’s prepared to run the company with a double-A credit rating should it lose its triple-A rating.

Kraft Foods Inc., the world’s second-largest foodmaker, lost 6.1 percent to $26.34 after posting fourth-quarter earnings and sales below analysts’ estimates. The maker of Nabisco cookies, Oscar Mayer lunchmeats and Maxwell House coffee also forecast 2009 earnings that trailed predictions in a Bloomberg survey.

Walt Disney Co., the second-largest U.S. media company, fell 6 percent to $19.45 after first-quarter sales and profit missed analysts’ estimates because of flagging ad sales and consumer spending. Disney was also hurt by a Commerce Department report that showed consumer spending decreased a greater-than-estimated 1 percent in December.

Worst in 26 Years

Earnings at the 307 companies in the S&P 500 that have reported fourth-quarter results fell 37 percent on average as firms from Microsoft Corp. to Procter & Gamble Co. disappointed investors and the economy shrank at the fastest pace in 26 years. The period is projected to be the sixth straight quarter of decreasing profits, the longest streak on record.

“Most of us are looking beyond the current earnings,” said Bruce McCain, chief investment strategist at Cleveland-based Key Private Bank, which manages about $22 billion. “These are just not going to look good. It’s more a question of what are the prospects going forward.”