U.S. stocks ended higher Monday, erasing earlier losses, as a report that Italy is asking China to invest in bonds triggered a rally that lifted the Dow Jones Industrial Average more than 200 points in the last 45 minutes of trading.
Nine out of 10 groups in the Standard & Poor’s 500 Index rallied, led by technology and financial shares. Bank of America Corp., the biggest U.S. lender by assets, gained 1 percent as it plans to eliminate 30,000 jobs in the next few years. NetLogic Microsystems Inc. surged 51 percent after Broadcom Corp. agreed to buy the company for $3.7 billion in cash.
The S&P 500 rose 0.7 percent to 1,162.27 at 4 p.m. in New York. The index, which retreated 1.6 percent earlier, reversed its slump after the Financial Times said Italy approached China about selling “significant” quantities of bonds and investments in some companies. The newspaper cited Italian officials it didn’t identify. The Dow added 68.99 points, or 0.6 percent, to 11,061.12.
“The fact that the Chinese are coming in is comforting,” Quincy Krosby, a market strategist for Newark, New Jersey-based Prudential Financial Inc., which oversees $883 billion, said in a telephone interview. “The question will be: Is this enough for the depths of the endemic problems facing the European Union? Until we see an easing in credit markets, it’s going to be difficult to take advantage of good valuations.”
Between April 29 and Aug. 8, the S&P 500 fell 18 percent on concern about Europe’s debt crisis and an economic slowdown. It closed as low as 1,119.46 on Aug. 8, within 29 points of a bear market, or a 20 percent drop. The decline left the index trading at 12.2 times earnings last month, according to data compiled by Bloomberg. It was the cheapest multiple since 2009.
Italians Meet Chinese
Benchmark gauges reversed losses as the FT reported that Italian officials met China Investment Corp. and the country’s State Administration of Foreign Exchange in Beijing two weeks ago, while Italy’s Head of Treasury, Vittorio Grilli, met Chinese investors in the Chinese capital in August.
“If China is willing to invest in Italy, maybe that’s the solution,” Mark Bronzo, who helps manage $26 billion at Security Global Investors in Irvington, New York, said in a telephone interview. “Maybe the other countries are going to be able to find capital on their own. That’s what we need to see to shore up these countries.”
Stocks fell earlier in the day amid concern Greece is moving closer to a debt default. Moody’s Investors Service may cut the ratings of BNP Paribas SA, Societe Generale SA and Credit Agricole SA this week because of their Greek holdings, two people with knowledge of the matter said.
The Morgan Stanley Cyclical Index of companies most-tied to economic growth lost 0.4 percent, paring a decline of as much as 2.8 percent. 3M Co., the maker of Post-It Notes, gained 2.1 percent to $78.22. Sears Holdings Corp. added 1.3 percent to $54.24.
Bank of America added 1 percent to $7.05. The lender will eliminate 30,000 jobs in the next few years as part of Chief Executive Officer Brian T. Moynihan’s plan to bolster profit and the company’s stock.
The reductions, equal to about 10 percent of the staff, are part of an overhaul that aims to remove about $5 billion in annual costs by the end of 2013. Moynihan’s plan, dubbed Project New BAC, included a management shakeup last week that elevated Thomas K. Montag and David Darnell to co-chief operating officers and left Sallie Krawcheck and Joe Price without jobs.
NetLogic surged 51 percent to $48.12. Shareholders will get $50 a share. That’s 57 percent more than Santa Clara, California-based NetLogic’s closing price on Sept. 9.
Valuations Are Attractive
Pacific Investment Management Co.’s Neel Kashkari said investors should buy equities because valuations, income growth and dividends show the asset class is attractive.
The S&P 500’s price-earnings ratio sank to a 28-month low of 12.2 last month, and then recovered to 12.5, according to data compiled by Bloomberg. The inverse of that multiple, known as the earnings yield, shows income represents 8 percent of the measure’s price, or 6.1 percentage points more than the rate on 10-year Treasuries. That’s the biggest gap since 2009, when the level was the highest in Bloomberg data going back to 1962. The dividend payout is exceeding bonds for the second period since the 1950s.
“Equities offer returns in three different ways: multiples can expand, earnings can grow and through dividends,” Kashkari, the head of global equities at Pimco, which manages about $1.3 trillion in assets, said in an interview on Bloomberg Television’s “InBusiness” with Margaret Brennan. “On all three factors, equities look very attractive.”
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