Stocks staged one of their strongest rallies of the year Tuesday, erasing a big decline from the day before, after a Federal Reserve official said he supported more measures to stimulate the economy.
Skip to next paragraphThe Dow Jones industrial average shot up 162 points, and every major category of stock in the U.S. market closed higher.
Charles Evans, president of the Fed's Chicago bank, told Bloomberg News that he supported action to produce faster job growth, including having the Fed commit to super-low interest rates until unemployment falls significantly.
Last week, Fed Chairman Ben Bernanke told a committee of Congress that he was ready to act if the economy needs it, but he laid out no immediate steps.
Investors have been worried about an escalating crisis in Europe over government debt and the health of banks, and job growth in the United States has been slower over the past three months than it was earlier in the year.
"If there's really bad news, it creates a heightened sense of anticipation that the Fed is going to ride to the rescue," said Jeff Lancaster, a prinicpal at the wealth advisory firm Bingham, Osborn & Scarborough in San Francisco.
"It's almost like you've crashed your car and you've got a $500 deductible, and you take the car to the body shop and you just have this perverse desire for the damage to be well over $500," he said.
Rob Lutts, president and chief investment officer of Cabot Money Management, said investors were looking for an excuse to buy.
"The question for Bernanke is should he add more medicine when he's already doped up the patient enough already," he said.
Materials companies, industrial companies and banks rose the most, but each of the 10 major categories of stock in the Standard & Poor's 500 climbed. Energy stocks also had an impressive day after the price of oil rose from an eight-month low.
Over the weekend, European countries committed to lend Spain up to $125 billion to save its failing banks. But on Monday, the Dow fell 142 points. Investors fretted that they did not know enough about the details.
The big rally in U.S. stocks on Tuesday came despite more discouraging signs from Europe. Spain's borrowing costs jumped for a second day, to the highest level since Spain adopted the euro currency.
The interest rate, or yield, on Spain's 10-year bond rose 0.20 percentage point to 6.67 percent. It rose as high as 6.81 percent earlier in the day. At 7 percent, economists say, countries generally can no longer finance their own debt.
The rescue loan will be funneled through the government of Spain, and investors are also worried about whether Spain will have to repay that loan before it pays its other debt.
That makes bondholders less willing to buy Spain's debt, and makes them demand a higher interest rate to compensate for the added risk that they will not be paid back first if Spain is unable to pay all its debt.
"The market needs some confidence and foreign buyers won't buy Spanish debt if they won't get paid first," said William O'Donnell, head of U.S. Treasury strategy at Royal Bank of Scotland.
Borrowing costs for Italy, which analysts fear will be the next European country to seek some kind of rescue, rose even more. They jumped 0.47 percentage point to 6.02 percent.
Investors are also nervous ahead of an election in Greece this weekend that may determine whether that country cuts itself free from the euro.
Stocks slipped early in Madrid, then turned positive and were up 0.1 percent after U.S. markets opened. France's CAC-40 rose 0.1 percent, and Germany's DAX gained 0.3 percent.
In the U.S., the Dow rose 162.57 points, or 1.3 percent, to close at 12,573.80. The Standard & Poor's 500 index gained 15.25 points to 1,324.18, and the Nasdaq composite rose 33.34 to 2,843.07. Trading was light for a second day.
Investors sold U.S. government debt, an indication that they were willing to move money into riskier assets. The yield on the benchmark 10-year U.S. Treasury note climbed 0.08 percentage point to 1.67 percent.
Michael Kors Holdings, a high-end clothing company, rose $2.06, or 5 percent, to $40.24 after reporting that its fourth-quarter profit more than tripled on strong demand grew for its luxury clothing and accessories.
The company also boosted its earnings forecast for the quarter and the year. Luxury spending has recovered from the recession faster than other consumer spending. Stocks of other upscale retailers, like Nordstrom, also rose.
Among other stocks making big moves:
— VeriFone Systems, an electronic payments company, fell $2.02, or 6 percent, to $31.92. A jury ruled against it last week in a patent dispute, and VeriFone said late Monday that it was booking $18 million in expenses.
— A123 Systems, which makes batteries for electric cars, jumped 54 cents, or 52 percent, to $1.58 after saying it had developed new lithium ion technology capable of operating in extreme heat or cold. Heat generated by powerful next-generation batteries is one of the biggest hurdles in developing cars that do not use fossil fuels.
— Textron, which makes planes, rose 94 cents, or 4 percent, to $24.52, one of the biggest gains in the S&P 500. Business jet operator NetJets said it plans to spend up to $9.6 billion on planes from Textron's Cessna unit and from Bombardier.
— First Solar, the world's largest maker of a type of solar panel, rose $2.62, or 21.2 percent, to $14.95. It reported strong demand from Europe and will delay the closing of a German plant.
World stocks struggle as crisis fears weigh - AP - msnbc.com
BRUSSELS — World stocks struggled Wednesday under concerns that Europe's debt crisis was deepening and threatening to infect the world economy.
While stocks opened initially up in Europe, the bad news from the regions quickly set in. Investors are nervously awaiting Greek elections on Sunday, when a party that's threatening to renege on the country's bailout terms could come away the big winner. That might force the country out the euro.
Attention is also focused on Spain, where borrowing costs rose to euro-era highs on Tuesday, increasing concerns that it could need a bailout. The country agreed last weekend to take a rescue package to help it shore up its banks, but investors worry the government may have trouble repaying the loans. The concerns about who would be next in Europe to fall into difficulty spread to Italy, which saw interest rates on 12-month bonds it was auctioning hit highs not reached since the start of the year.
Stocks slipped or moved sideways amid the uncertainty.
France's CAC-40 dropped 0.7 percent to 3,027, while the DAX in Germany fell 0.2 percent to 6,148. The FTSE index of leading British shares moved down 0.1 percent to 5,471.
The euro mostly bucked the trend, however, moving up 0.7 percent to $1.2595.
"It definitely feels as though we are plodding along as many traders and investors watch from the sidelines until we know the result of the Greek elections next week," said Jordan Lambert, a trader with SpreadEx. "With the outcome hanging on a knife's edge, the markets are far away from pricing in either a Greek survival in, or exit from, the euro, meaning there could be a huge move after the election is complete."
The debt crisis is not just rattling financial markets, but also affecting households and businesses by creating uncertainty over the future of the economy. The latest report from Eurostat, the EU statistics agency, showed industrial production in April among the 17 countries that use the euro slipped 0.8 percent. Analysts noted that even that poor showing is worse than it seems because a cold Spring pushed up energy demand.
In the U.S., the government reported that retail sales fell in both April and May. But excluding gas station sales, where prices dropped throughout those months, retail sales grew modestly in May.
Wall Street hovered around where it closed Tuesday. The Dow Jones industrial average was unchanged at 12,571 as was the S&P 500 at 1,325.
Earlier in Asia, stocks had an equally choppy session.
Japan's Nikkei 225 index gained 0.6 percent to close at 8,587.84, after machinery orders rose 5.7 percent to the highest level in four years, Kyodo reported.
South Korea's Kospi swung temporarily into negative territory in early trading before closing 0.2 percent higher at 1,859.32. Hong Kong's Hang Seng also briefly dipped before rising 0.8 percent to 18,026.52.
Australia's S&P/ASX 200 fell 0.2 percent to 4,063.80. Benchmarks in New Zealand and Singapore fell but Taiwan's rose.
Mainland Chinese shares rose on hopes authorities would bring in more economy-boosting measures. The benchmark Shanghai Composite Index added 1.3 percent to 2,318.92 while the smaller Shenzhen Composite Index gained 1.8 percent to 959.11. Shares in biotechnology, insurance and power-related companies led the gains.
Despite concerns for the economy, which drives down energy demand, benchmark oil for July delivery rose 12 cents to $83.44 per barrel in electronic trading on the New York Mercantile Exchange.
___
Kelvin Chan in Hong Kong and Fu Ting in Shanghai contributed to this report.
Copyright 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Stocks may be the best of a bad bunch - Financial Times
Winston Churchill called democracy “the worst form of government except all those other forms that have been tried from time to time”.
Equity investors, tempted to despair after miserable returns since the turn of the millennium, should think of the asset class in similar terms.
The case against equities is easy to make. Despite delivering negative real returns of about minus 1 per cent per annum since the year 2000, the US stock market is still relatively expensive by historical standards.
Robert Shiller, the Yale economist, and I have popularised a simple valuation ratio, the ratio of prices to a 10-year moving average of earnings, sometimes called the “cyclically adjusted price/earnings ratio”, or CAPE. By averaging reported earnings over several years, this ratio avoids wild swings caused by temporary losses during recessions; and it does not rely on analysts’ earnings growth forecasts, which are often over-optimistic.
Over the period from 1881 through the first quarter of 2012, the CAPE for the S&P 500 index averaged 16.4. Today, it is about 21. While this is less than half the stratospheric level of 44 reached in early 2000, a further decline of more than 20 per cent would be needed to reach the long-term average.
Bears ask: what if long-term historical valuation norms reassert themselves, or, still worse, what if another financial crisis drives the CAPE down to troughs reached as recently as the early 1980s, well below 10?
Although equities certainly do present downside risks, it is a mistake to focus only on the downside. The movements of the CAPE in recent decades have been strikingly persistent, showing no tendency to revert to the norms of the early or mid-20th century.
Despite the intense fear and financial stress created by the global financial crisis in 2008 and 2009, even at the trough the CAPE fell only slightly below its historical average. This suggests that changes in the economy and financial system – for example, the decline in real interest rates and the expansion of stock market participation through mutual funds and retirement savings accounts – may have permanently altered the CAPE’s average level.
A sensible base-case scenario is that the CAPE will remain at its current level. Since prices are higher relative to past earnings than they were in the last century, returns to investors will be lower unless earnings grow unusually rapidly – something that few investors expect, and which has never been easy to predict. Therefore, a prudent investor should expect real stock returns to be lower than the 20th century geometric average of 7 per cent per annum by, say, 1.5 percentage points.
The case for equities is not that they offer high returns in absolute terms, but that other investments have deteriorated as much or more, relative to historical norms.
Short-term US Treasury bills yield less than 10 basis points, and even the 30-year Treasury bond yield is below 3 per cent, at a time when inflation has been running above 2 per cent during the past year.
Tips (inflation-indexed Treasury bond) yields are negative out to 15 years, and only 60 basis points at 30 years. This environment is a dramatic change from the turn of the millennium, when Tips yields exceeded 4 per cent.
Similar patterns prevail globally. Bond yields are historically low for creditworthy governments, while international equities are priced at least as attractively as in the US.
Looking beyond fixed-income securities, the recent financial crisis has reminded investors that few asset classes remain easily tradable in bad times. University endowments that invested heavily in private equity and real estate during the early 2000s have struggled with the illiquidity of their portfolios since 2008. The comparatively reliable liquidity of public equity markets is a further attraction of the asset class.
Finally, the risks of equity investing should be judged in the context of an overall portfolio strategy. In recent years, Treasury bonds have tended to move in opposite directions to stocks as investors have moved money between these asset classes in a “risk on, risk off” trading pattern.
This makes Treasuries good hedges for equity risk, which may explain why investors are willing to accept such low bond yields. So long as this pattern persists, it will help to reduce the risks of a diversified portfolio of bonds and stocks, while amplifying the risks of equity investing for a pension fund or insurance company with long-term fixed liabilities.
For a well-diversified long-term investor, stocks are not bargain-priced today, but they do offer significant compensation for their risks. In this sense, among asset classes equities may be the best of a bad bunch.
John Campbell is a professor of economics at Harvard University and a partner at Arrowstreet Capital
Stocks Turn Higher as Banks Gain; JPM Rallies - CNBC
Stocks recovered from their early lows Wednesday, buoyed by financials, but tepid economic reports and ongoing uncertainty in the euro zone kept a lid on gains.
“We’ve been gyrating around the 1,320 on the S&P 500,” noted Todd Salamone, director of research at Schaeffer’s Investment Research. “This could be some technical trading ahead of options expiration this week…and of course, we’re still trading on the headlines. It’s frustrating for both bulls and bears.”
The Dow Jones Industrial Average hovered around the flatline, after jumping more than 1 percent in the previous session. JPMorgan led the blue-chip gainers, while Caterpillar [CAT Loading... () 
] dragged.
The S&P 500 and the Nasdaq also cut their early losses. The CBOE Volatility Index, widely considered the best gauge of fear in the market, traded near 23.
Among the key S&P sectors, telecoms and financials led the gainers, while materials lagged.
Stocks have been volatile all week amid thin volume, with all three major indexes swinging more than 1 percent in either direction in the last two sessions.
JPMorgan [JPM Loading... () ] CEO Jamie Dimon apologized for the bank's $2 billion trading loss, and told the Senate Banking Committee that it was an "isolated incident." The CEO was jeered by angry protestors ahead of his testimony. Shares added to gains following the hearing, but are still down almost 15 percent since the loss was revealed on May 10. Meanwhile, Oppenheimer cut its price target on the bank to $56 from $58.
European shares ended lower as investors hesitated to jump in amid the ongoing tension in the region and ahead of the Greek election over the weekend. Adding to woes, Greek bankers said up to 800 million euros ($1 billion) were exiting major banks daily with some of the money was being used to stock up on pasta and canned goods ahead of Sunday's elections.
“The headline risk in the market is at the highest I’ve ever seen and reactions are extremely temperamental,” said Keith Bliss, senior vice president at Cuttone & Co. “[The volatility] will certainly continue through at least the Presidential election…There’s going to be a lot of choppiness leading up to that and I definitely don’t think we’ll reach any type of viable resolution in Europe for a long time.”
Dell [DELL Loading... () ] jumped to lead the S&P 500 gainers after the PC maker announced it will offer shareholders a dividend of 32 cent a share per year, or 8 cents a quarter.
Johnson & Johnson [JNJ Loading... () ] advanced after the drugmaker said it expects the $19.7 billion acquisition of Swiss medical device maker Synthes to slightly boost profit this year. In addition, at least three brokerages raised their rating on the company.
Scotts Miracle-Gro [SMG Loading... () ] plunged after the lawn care and service company said it would miss its full-year outlook on weak demand during the peak gardening season. In addition, RBC slashed its price target on the firm to $38 from $48.
Zynga [ZNGA Loading... () ] rose slightly after] rallied for a second day, trading near $28 a share.
On the economic front, producer prices tumbled 1 percent in May as energy costs fell the most since March 2009, according to the Labor Department.
Retail sales fell for a second month, slipping 0.2 percent in May, according to the Commerce Department. Meanwhile, business inventories rose 0.4 percent to a record $1.58 trillion in April, pointing to continued careful management of stocks.
Oil prices slipped even after the EIA's inventory data showed crude supplies declined last week. Investors will be waiting for headlines from the OPEC meeting later this week.
The government is scheduled to auction $21 billion in 10-year notes at 1pm ET.
—By CNBC’s JeeYeon Park (Follow JeeYeon on Twitter: @JeeYeonParkCNBC)
Coming Up This Week:
WEDNESDAY: 10-yr note auction
THURSDAY: CPI, jobless claims, current account, 30-yr bond auction, AOL shareholders mtg; Earnings from Kroger, Smithfield Foods, Pier 1 Imports
FRIDAY: Empire state mfg survey, treasury int'l capital, industrial production, consumer sentiment, credit card default rates reported, quadruple witching
More From CNBC.com:
The unbanked: Financial crisis creates greater need for basic services - Financial Times
©DreamstimeIt is harder for the poor to buy bricks and mortar
An important social priority in fighting poverty and encouraging economic growth is to address the 2.5bn “unbanked” in the world, 50 per cent of the adult population. The first step in bringing them the stability and benefits of financial services is to get them to use a basic current account that is specifically designed for those with poor credit scores.
“They enable those who cannot get a full service current account to access banking facilities, as they only need to prove their identity and where they live,” says David Black, banking specialist at Defaqto, an independent financial research company.
“To get a full service current account you need to have a credit check, which might stop a lot of people who are excluded from mainstream credit.”
A basic bank account allows people to receive wages, pension or benefits; bank cash and cheques: pay bills by direct debit or standing order: withdraw cash from a machine: and some include a debit card.
However, they do not allow holders to write cheques, hold credit cards or take out overdrafts.
In the wake of the financial crisis there is concern that, as the banks move to de-risk their balance sheets, they will try to disenfranchise customers without credit scores.
Strictly speaking, because there are no cheques or overdrafts, these accounts are risk-free. The problem is that banks lose money on such accounts, even those charging monthly fees, because they are unable to charge high interest rates or sell users other, more lucrative, financial services.
These accounts are often provided as a result of pressure from governments or as a part of social responsibility agenda. Very few customers will become profitable by improving their credit rating enough for a full-service account.
According to MoneySavingExpert.com, an independent website, banks “make it bureaucratically difficult to open one, so unless you specifically ask for them by name, the bank staff may not mention the option. Instead you will just be given normal bank account application forms, fail the credit score and be rejected.”
The site’s solution is to force banks to offer their basic account to all those rejected after credit checks.
The 2.5bn “unbanked” figure comes from “Measuring Financial Inclusion: The Global Findex Database”, a recent report from the World Bank Development Research Group. It found that by far the most common reason for not having a formal account (65 per cent) is lack of enough money to use one.
“This speaks to the fact that having a formal account is not costless in most parts of the world and may be viewed as unnecessary by a person whose income stream is small or irregular,” says the report.
The next most common reason reported for not having an account is that banks or accounts are too expensive (25 per cent).
As well as restricting access, in order to control costs, basic accounts are at risk from levying of charges to mitigate losses, such as monthly account fees or charges for withdrawing cash at automated teller machines.
However, Graham Lloyd, a financial services expert at PA Consulting Group, finds that withdrawing basic accounts is generally not happening. This is partly because banks do not want to be seen to be pulling out of such a needy sector when they are already on the defensive over their customer image and perceptions of greed.
Also, even the sector’s meagre deposits – plus those of any indignant customers who might leave should the bank abandon the disenfranchised – have a premium value in these liquidity-constrained times.
There are already signs of basic account customers resisting imposition of fees.
“It has led to dramatic consumer backlash in developed regions,” says Kumail Tyebjee, senior principal of financial services at Infosys, a consulting, technology and outsourcing company. “One of the most visible was against institutions that added fees to debit card services. Disenfranchised customers are seeking out alternative value offerings, such as Walmart Financial Centers and Western Union.”
In the developing world, mobile payments systems are cheaper and easier for customers to access. Mr Tyebjee points out 70 per cent of the world’s population will own a mobile by 2013. Mobile services are also less costly and more profitable for the banks.
The area where the poor have been most heavily disenfranchised is in the subprime mortgage market.
Mr Black says that heavy risk mortgages are no longer available, medium risk have almost disappeared and although very light risk loans are still available, few lenders in the market are offering them.
He is more concerned about people who took out a normal mortgage some years ago and have since encountered credit problems.
“They won’t be able to remortgage anywhere else,” he says, “so they are stuck with their lender in its mortgage rate. Similarly, anybody with a heavy subprime mortgage will not be able to move because nobody will want them.”
There is no doubt that the financial crisis has created a greater need for basic bank accounts, as credit problems for the disenfranchised increase. Chris Gibson, a director at Navigant Consulting, an expert services firm, believes that the current account market needs greater competition and choice to improve propositions to marginalised customer segments.
“While the market makes much of the moves to improve competition, we are yet to see any difference,” he says.
“Several new entrants to the market have yet to add a current account to their product set. Others have launched with a current account proposition, but branch locations situated in more affluent areas mean that only those customers are likely to benefit from their products.”
Stocks drift on mixed economic data - Click2Houston.com
U.S. stocks drifted in a narrow range Wednesday as investors weighed mixed economic reports and congressional testimony by JPMorgan chief Jamie Dimon.
The Dow Jones industrial average was down 16 points, or 0.1%, at midday. The S&P 500 fell 1 point, or 0.1%, and the Nasdaq rose 1 point, or less than 0.1%.
Stocks opened lower after reports showed that retail sales remained weak in May and producer prices fell sharply. But the market regained ground following a better-than-expected report on U.S. business inventories.
Investors were keeping a close eye on Capitol Hill, where Dimon told lawmakers that he cannot defend the trades that led to JPMorgan's multi-billion loss.
Dimon blamed the loss on insufficient risk controls and a failure by traders to understand the bets they were placing. But he refused to say that JPMorgan was using trades from its chief investment office to make money.
Lawrence Creatura, a portfolio manager with Federated Clover Investment Advisors, said investors want "to observe the tone that politicians use in questioning leaders of business."
"Is Jamie Dimon going to be received as an ally by politicians in trying to get the economy back on its feet, or is he perceived as part of the problem?" said Creatura.
Meanwhile, ongoing concerns about the debt crisis in Europe continue to weigh on the market. Investors are worried about Spain, which recently requested up to €100 billion to recapitalize insolvent banks. Greece is also in focus ahead of a crucial election this weekend.
"There are a lot of cross currents today with no hard-and-fast drivers," said Creatura. "We've got confrontational testimony following mixed data and sparse corporate earnings. It will be difficult for the market to latch on to anything."
Despite the immediate concerns, many investors expect stocks to move higher later in the year. There is widespread speculation that the Federal Reserve will take additional steps to support the economy if conditions continue to deteriorate.
A survey from CNNMoney of 20 investment strategists and money managers suggests that the S&P 500 could rise more than 8%, from its current level above 1,430 -- which means a 14% gain for the year.
U.S. stocks rose Tuesday, recovering the previous day's losses. All three indexes closed up more than 1% in what analysts said was a relief rally in response to Monday's sell-off. Bank stocks were among the biggest winners, with shares of Bank of America, Citigroup and JPMorgan Chase rising more than 2%.
World markets: European stocks ended mixed. Britain's FTSE 100 was little changed, while the DAX in Germany fell 0.1% and France's CAC 40 lost 0.7%.
Asian markets ended higher. The Shanghai Composite gained 1.3%, while the Hang Seng in Hong Kong rose 0.8% and Japan's Nikkei ended 0.6% higher.
Economy: The Producer Price Index, which measures changes in wholesale prices, dropped 1% in May. Economists surveyed by Briefing.com had expected a decline of 0.7%.
The government's estimates on retail sales for May showed a decline of 0.2%. This was close to what economists expectations from economists surveyed by Briefing.com.
Business inventories rose 0.4% in April, which was slightly better than expected.
Companies: Computer maker Dell said Tuesday that it will start paying dividends to shareholders later this year, boosting its stock by 4.5%.
Philip Morris International announced an $18 billion share repurchase plan Wednesday. Shares of the company, which was spun off from domestic tobacco company Altria Group in 2008, are up 8% year-to-date.
Shares of Dow component Johnson & Johnson were up 2.4%. The company disclosed after the close Tuesday that it will be able to complete its purchase of Swiss medical device maker Synthes on Thursday, much sooner than expected.
It also said the deal will add 3 to 5 cents a share to its earnings this year, rather than shave 22 cents a share off its profits as it previously forecast.
Currencies and commodities: The dollar fell against the euro, but gained strength against the British pound and Japanese yen.
Oil for July delivery fell 92 cents to $82.40 a barrel. Oil prices have swung wildly lately, due to political and economic uncertainty around the globe.
Gold futures for August delivery rose $7.70 to $1,621.50 an ounce.
Bonds: The price on the benchmark 10-year U.S. Treasury edged up, pushing the yield down to 1.66% from 1.67% late Tuesday.
US STOCKS-Wall St flat in volatile trade; JPMorgan shares up - Reuters UK
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'Diablo 3' real-money auction house European launch date confirmed - Digital Spy
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