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Obama Rally Reaches 22% in Recovery From Bear Market (Update3)
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By Eric Martin
March 24 (Bloomberg) -- The Standard & Poor’s 500 Index took seven weeks to fall 20 percent and give President Barack Obama a bear market. To reach a bull market, it needed 10 days.
U.S. stocks staged their biggest rally in five months yesterday, led by an 18 percent surge in financial companies, on speculation the administration’s plan to rid banks of toxic assets will revive the economy. The gain pushed the S&P 500’s increase since sinking to a 12-year low on March 9 to 22 percent, the fastest two-week advance since 1938.
Growing confidence in Treasury Secretary Timothy Geithner’s program to unfreeze credit markets boosted equities after his first proposal on Feb. 10 spurred a 4.9 percent drop in the S&P 500, the largest since Obama took office. Shares are rebounding after the S&P 500 slid 20 percent from Inauguration Day to March 9, the steepest decrease for a newly elected president in at least 80 years, according to data compiled by Bloomberg.
“Obama and company started paying attention to the stock market,” said Jack Ablin, chief investment officer at Chicago- based Harris Private Bank, which oversees $60 billion. “They knew they had one shot at this, they took a big swing and I think they hit the ball out of the park.”
Banks, computer makers and retailers led yesterday’s gain, which erased 2009 losses for Dow Jones Industrial Average companies Intel Corp., General Motors Corp. and Home Depot Inc. All 24 industries and 493 of 500 stocks in S&P’s benchmark gauge for U.S. shares climbed.
Five-Week High
The S&P 500 slipped 2 percent today after advancing 7.1 percent to 822.92 yesterday, its biggest rally since Oct. 28.
Yesterday, the Dow Jones Industrial Average added 497.48 points, or 6.8 percent, to a five-week high of 7,775.86. The MSCI World Index rose for the ninth time in 10 days, adding 5.1 percent. Twenty-one stocks increased for each that fell on the New York Stock Exchange, the most since at least July 2004.
The Treasury’s Public-Private Investment Program will use $75 billion to $100 billion from the $700 billion Troubled Asset Relief Program enacted last year, giving the government “purchasing power” of $500 billion. The plan is aimed at unclogging bank balance sheets after $1.2 trillion of losses triggered a global recession in 2008 and sent the S&P 500 down 38 percent, the worst drop in 71 years.
The gauge plunged 43 points on Feb. 10 after Geithner said he was still “exploring a range of different structures” to bail out lenders. Senator Richard Shelby, the leading Republican on the Senate Banking Committee, said on March 22 that confidence was ebbing in Geithner after his handling of bonuses at American International Group Inc.
Wall Street Hero
“Maybe practice makes perfect,” said John Carey, a Boston-based money manager at Pioneer Investment Management, which oversees about $200 billion. “Another few days like this and he’ll be a great hero on Wall Street.”
Obama said he would refuse Geithner’s resignation should it be offered, according to an interview for the CBS program “60 Minutes” on March 22.
The MSCI World, an index of 23 developed nations, has added 21 percent since March 9 as Citigroup Inc. and JPMorgan Chase & Co. in New York and Charlotte, North Carolina-based Bank of America Corp., the biggest U.S. banks, said they made money in the first two months of 2009.
The MSCI Emerging Markets Index of 23 developing nations gained 4.8 percent yesterday, erasing its 2009 drop. Templeton Asset Management’s Mark Mobius said the next bull-market rally in developing nations has begun.
Cutting Losses
The S&P 500 pared its 2009 loss to 8.9 percent from 25 percent on March 9, when it closed at 676.53, the lowest level since 1996. Obama said on March 3 that buying U.S. shares “is a potentially good deal” for long-term investors. Since then, the index added 18 percent.
Barton Biggs, who runs New York-based hedge fund Traxis Partners LP, said the S&P 500 may climb as much as 50 percent from the March 9 low, helped by cheap valuations among technology stocks. Banks will continue to suffer from “volatility and uncertainty,” he said.
Santa Clara, California-based Intel rose 5.9 percent to $15.52, leading gains among technology shares. GM, located in Detroit, added 5.4 percent to $3.35 as all 30 stocks in the Dow average advanced. Home Depot in Atlanta rose 4.9 percent to $23.25 as retailers in the S&P 500 increased 6.4 percent.
Inevitable Solution
Investors should sell bank stocks because the Treasury Department’s plan won’t stop profits from dropping, Bank of America’s Richard Bernstein said. Analysts project profit at financial companies in the S&P 500 will decline 33 percent this quarter and 34 percent in the next, according to estimates compiled by Bloomberg.
“The history of bubbles shows quite well that financial sector consolidation is inevitable,” Bernstein, Bank of America’s chief investment strategist, wrote in a research note. “Financial stocks will be attractive when the government tries to speed up that inevitable process. However, to the contrary, the government continues to attempt to stymie that inevitable consolidation.”
Bernstein and David Rosenberg, the firm’s chief North American economist, are leaving Bank of America, company spokeswoman Susan McCabe said today.
BlackRock Inc.’s global macro fund, the world’s second-best performer over two years among hedge funds that invest based on economic trends, is betting against this month’s equities rally and buying bonds.
‘Revisit Their Lows’
BlackRock’s A$216 million ($152 million) Asset Allocation Alpha Fund returned 41 percent in 2008, when hedge funds around the world lost a record 19 percent on average. The fund is short U.S. and Australian equities, expecting them to decline, said its manager David Hudson.
“The risk is that the economic recovery disappoints in the second half and that equity markets need to revisit their lows in the next few months and maybe go through them,” Sydney-based Hudson said in an interview March 20.
The S&P 500 traded for 11.7 times the profits of its companies over the past 10 years on March 9, the lowest since 1985, according to data compiled by Yale University professor Robert Shiller.
“There’s a lot of good things that have been building a base over a period of time for this rally,” said James Paulsen, who helps oversee about $400 billion as chief investment strategist at Wells Capital Management in Minneapolis. “The reaction that everyone is going to attribute to Geithner and the toxic bank plan is much broader than that.”
Obama Rally Reaches 22% in Recovery From Bear Market (Update3)
Share | Email | Print | A A A
By Eric Martin
March 24 (Bloomberg) -- The Standard & Poor’s 500 Index took seven weeks to fall 20 percent and give President Barack Obama a bear market. To reach a bull market, it needed 10 days.
U.S. stocks staged their biggest rally in five months yesterday, led by an 18 percent surge in financial companies, on speculation the administration’s plan to rid banks of toxic assets will revive the economy. The gain pushed the S&P 500’s increase since sinking to a 12-year low on March 9 to 22 percent, the fastest two-week advance since 1938.
Growing confidence in Treasury Secretary Timothy Geithner’s program to unfreeze credit markets boosted equities after his first proposal on Feb. 10 spurred a 4.9 percent drop in the S&P 500, the largest since Obama took office. Shares are rebounding after the S&P 500 slid 20 percent from Inauguration Day to March 9, the steepest decrease for a newly elected president in at least 80 years, according to data compiled by Bloomberg.
“Obama and company started paying attention to the stock market,” said Jack Ablin, chief investment officer at Chicago- based Harris Private Bank, which oversees $60 billion. “They knew they had one shot at this, they took a big swing and I think they hit the ball out of the park.”
Banks, computer makers and retailers led yesterday’s gain, which erased 2009 losses for Dow Jones Industrial Average companies Intel Corp., General Motors Corp. and Home Depot Inc. All 24 industries and 493 of 500 stocks in S&P’s benchmark gauge for U.S. shares climbed.
Five-Week High
The S&P 500 slipped 2 percent today after advancing 7.1 percent to 822.92 yesterday, its biggest rally since Oct. 28.
Yesterday, the Dow Jones Industrial Average added 497.48 points, or 6.8 percent, to a five-week high of 7,775.86. The MSCI World Index rose for the ninth time in 10 days, adding 5.1 percent. Twenty-one stocks increased for each that fell on the New York Stock Exchange, the most since at least July 2004.
The Treasury’s Public-Private Investment Program will use $75 billion to $100 billion from the $700 billion Troubled Asset Relief Program enacted last year, giving the government “purchasing power” of $500 billion. The plan is aimed at unclogging bank balance sheets after $1.2 trillion of losses triggered a global recession in 2008 and sent the S&P 500 down 38 percent, the worst drop in 71 years.
The gauge plunged 43 points on Feb. 10 after Geithner said he was still “exploring a range of different structures” to bail out lenders. Senator Richard Shelby, the leading Republican on the Senate Banking Committee, said on March 22 that confidence was ebbing in Geithner after his handling of bonuses at American International Group Inc.
Wall Street Hero
“Maybe practice makes perfect,” said John Carey, a Boston-based money manager at Pioneer Investment Management, which oversees about $200 billion. “Another few days like this and he’ll be a great hero on Wall Street.”
Obama said he would refuse Geithner’s resignation should it be offered, according to an interview for the CBS program “60 Minutes” on March 22.
The MSCI World, an index of 23 developed nations, has added 21 percent since March 9 as Citigroup Inc. and JPMorgan Chase & Co. in New York and Charlotte, North Carolina-based Bank of America Corp., the biggest U.S. banks, said they made money in the first two months of 2009.
The MSCI Emerging Markets Index of 23 developing nations gained 4.8 percent yesterday, erasing its 2009 drop. Templeton Asset Management’s Mark Mobius said the next bull-market rally in developing nations has begun.
Cutting Losses
The S&P 500 pared its 2009 loss to 8.9 percent from 25 percent on March 9, when it closed at 676.53, the lowest level since 1996. Obama said on March 3 that buying U.S. shares “is a potentially good deal” for long-term investors. Since then, the index added 18 percent.
Barton Biggs, who runs New York-based hedge fund Traxis Partners LP, said the S&P 500 may climb as much as 50 percent from the March 9 low, helped by cheap valuations among technology stocks. Banks will continue to suffer from “volatility and uncertainty,” he said.
Santa Clara, California-based Intel rose 5.9 percent to $15.52, leading gains among technology shares. GM, located in Detroit, added 5.4 percent to $3.35 as all 30 stocks in the Dow average advanced. Home Depot in Atlanta rose 4.9 percent to $23.25 as retailers in the S&P 500 increased 6.4 percent.
Inevitable Solution
Investors should sell bank stocks because the Treasury Department’s plan won’t stop profits from dropping, Bank of America’s Richard Bernstein said. Analysts project profit at financial companies in the S&P 500 will decline 33 percent this quarter and 34 percent in the next, according to estimates compiled by Bloomberg.
“The history of bubbles shows quite well that financial sector consolidation is inevitable,” Bernstein, Bank of America’s chief investment strategist, wrote in a research note. “Financial stocks will be attractive when the government tries to speed up that inevitable process. However, to the contrary, the government continues to attempt to stymie that inevitable consolidation.”
Bernstein and David Rosenberg, the firm’s chief North American economist, are leaving Bank of America, company spokeswoman Susan McCabe said today.
BlackRock Inc.’s global macro fund, the world’s second-best performer over two years among hedge funds that invest based on economic trends, is betting against this month’s equities rally and buying bonds.
‘Revisit Their Lows’
BlackRock’s A$216 million ($152 million) Asset Allocation Alpha Fund returned 41 percent in 2008, when hedge funds around the world lost a record 19 percent on average. The fund is short U.S. and Australian equities, expecting them to decline, said its manager David Hudson.
“The risk is that the economic recovery disappoints in the second half and that equity markets need to revisit their lows in the next few months and maybe go through them,” Sydney-based Hudson said in an interview March 20.
The S&P 500 traded for 11.7 times the profits of its companies over the past 10 years on March 9, the lowest since 1985, according to data compiled by Yale University professor Robert Shiller.
“There’s a lot of good things that have been building a base over a period of time for this rally,” said James Paulsen, who helps oversee about $400 billion as chief investment strategist at Wells Capital Management in Minneapolis. “The reaction that everyone is going to attribute to Geithner and the toxic bank plan is much broader than that.”
