By Whitney Kisling
U.S. stocks rose, breaking a four- week losing streak in the Standard & Poor’s 500 Index, after Federal Reserve Chairman Ben S. Bernankeindicated the world’s largest economy isn’t deteriorating fast enough to warrant additional stimulus.
Bank of America Corp. (BAC) rallied 11 percent after Warren Buffett’s Berkshire Hathaway Inc. invested $5 billion. Tiffany & Co. (TIF) surged 20 percent after raising its earnings forecast. MEMC Electronic Materials Inc. (WFR) jumped 18 percent, leading a rally in solar stocks, as Goldman Sachs Group Inc. said the industry is close to bottoming. Apple Inc. (AAPL) rose 7.7 percent even after Chief Executive Officer Steve Jobs quit. Travelers Cos. slumped 2.4 percent as Hurricane Irene headed for the U.S. East Coast.
The S&P 500 rose 4.7 percent to 1,176.80. The index had plunged 16 percent between July 22 and Aug. 19, the most in four weeks since March 2009. The Dow Jones Industrial Averageadded 466.89 points, or 4.3 percent, to 11,284.54 this week.
“We’ve got our problems, but they’re ones we can come out of,” Don Hodges, chairman of Dallas-based Hodges Capital Management Inc., which has $700 million in assets under management, said during an interview in New York. “It feels like we’re reaching for a bottom now, that we’re beginning to pick up. We are buyers.”
Stocks dropped and then rebounded today after Bernanke’s speech, in which he said the central bank still has tools to stimulate the economy without signaling he will use them. He echoed comments from dissenting members of the Federal Open Market Committee who said data aren’t pointing to a recession. Investors piled into U.S. equities trading at the cheapest price-earnings ratios since 2009.
‘Fuller Discussion’
Bernanke said a second day has been added to the next FOMC meeting in September to “allow a fuller discussion” of the economy and the Fed’s possible response. He didn’t close the door in today’s speech to options he has previously discussed, including a third round of government bond buying.
The week’s advance followed an increase in U.S. durable- goods orders that topped the median economist projection, as well as the biggest rise in home prices since September 2005. Those reports overshadowed an unexpected rise in jobless claims and helped the S&P 500 curb its loss for the month to 8.9 percent from 13 percent as of Aug. 19.
Not ‘Permanently Altered’
“Although important problems certainly exist, the growth fundamentals of the United States do not appear to have been permanently altered by the shocks of the past four years,” Bernanke said in prepared comments today from Jackson Hole, Wyoming. “It may take some time, but we can reasonably expect to see a return to growth rates and employment levels consistent with those underlying fundamentals.”
Exchanges and investors are preparing for Hurricane Irene, the biggest storm expected to hit the Northeast in more than two decades. While all of the main U.S. stock exchanges plan to open for trading on Aug. 29, Irene, forecast to reach New York this weekend, has the potential to shut down the New York Stock Exchange, Louis Pastina, senior vice president for NYSE Euronext (NYX), said in a Bloomberg Television interview today.
All 10 S&P 500 industries rose more than 2 percent for the week, with shares of technology companies advancing 6.2 percent as a group, the most since the period ended July 1.
“There’s a risk appetite that’s building in the marketplace,” Dan Veru, chief investment officer at Fort Lee, New Jersey-based Palisades Capital Management LLC, which oversees $3.8 billion, said in a telephone interview. “At some point people are going to see interest rates are going to stay at zero for some time, so we should probably buy financial assets. It takes a while to digest what this all means.”
Buffett Buys
Bank of America gained the most in the Dow this week, advancing 11 percent to $7.76. Berkshire Hathaway said it will invest $5 billion after losses tied to subprime mortgages drained capital from the biggest U.S. lender. The shares had retreated 48 percent in 2011 before Buffett’s announcement as investors speculated the lender will have to raise money. They rallied 11 percent on Aug. 24, the day before the Buffett investment, as bank analyst Meredith Whitney said the lender wouldn’t have to raise capital.
“Bank of America is a strong, well-led company,” Buffett said in an Aug. 25 statement. “I am impressed with the profit- generating abilities of this franchise, and that they are acting aggressively to put their challenges behind them.”
Tiffany, the world’s second-largest luxury jewelry retailer, gained 20 percent to $69.01 for the biggest rise in the S&P 500. The company boosted its full-year profit forecast on price increases and sales in the Asia-Pacific region.
Coach, MEMC
Coach Inc. (COH), the maker of luxury handbags, advanced 19 percent to $54.76 for the second-biggest S&P 500 rally. Jefferies & Co. raised its rating to “buy” from “hold,” saying the stock market’s recent decline made the shares cheap.
MEMC, the second-largest U.S. maker of polysilicon, rose 18 percent to $6.87 in the biggest weekly gain since February. Goldman Sachs said producers of solar-energy equipment may stop falling. MEMC had retreated 48 percent in 2011 before this week.
Apple added 7.7 percent to $383.58. Jobs, who transformed the company he started at age 21 from a personal-computer also- ran into the world’s largest technology company, was replaced by Chief Operating Officer Tim Cook on Aug. 24, after markets closed. He will remain chairman.
Apple fell 0.7 percent the next day and advanced 2.6 percent today.
Travelers, the New York-based insurer, was the only stock in the Dow that declined, losing 2.4 percent to $48.30, as investors speculated about losses from Hurricane Irene.
Lower Valuations
U.S. stocks are cheaper this month than they have been in 28 months, as investors sold shares on concern the world’s largest economy may enter a recession. The S&P 500 is trading at 12.9 times earnings and fell as low as 12.2 times earnings on Aug. 8, the lowest point since March 2009, when the bull market began.
“If you look at the relative valuation of stocks, they’re pricing in a fairly cataclysmic outcome already,” Barry Knapp, head of U.S. equity strategy at Barclays Capital, said in a Bloomberg Television interview on Aug. 23. Fears of a recession are “overblown,” he said.
Volatility narrowed this week, with the benchmark index for U.S. stock options snapping its longest streak of weekly gains since October 2008. The VIX, as the Chicago Board Options Exchange Volatility Index is known, slumped 17 percent to 35.59. The gauge of S&P 500 options prices has averaged 20.39 in its 21-year history.
To contact the reporter on this story: 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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