U.S. Stocks Rise on Europe as Earnings Beat Estimates

U.S. stocks rose, sending the Standard & Poor’s 500 Index to a three-month high, as German Chancellor Angela Merkel’s government backed the European Central Bank’s bond-buying plan and earnings beat forecasts.

Bank of America Corp. (BAC), Caterpillar Inc. (CAT) and Alcoa Inc. (AA) jumped at least 1.8 percent to pace advances among the largest U.S. companies. Best Buy Co. (BBY) surged 12 percent as founder Richard Schulze offered to take the electronics retailer private. Regions Financial Corp. (RF) added 1.9 percent after Bank of America Corp. raised its recommendation on the shares. Knight Capital Group Inc. (KCG), the firm driven to the brink of bankruptcy by trading losses last week, tumbled 21 percent.

About five stocks advanced for every two falling on U.S. exchanges at 12:41 p.m. New York time. The S&P 500 (SPX) rose 0.5 percent to 1,398.38. The Dow Jones Industrial Average added 76.48 points, or 0.6 percent, to 13,172.65. Trading in S&P 500 companies was down 15 percent from the 30-day average at this time of day.

“There’s better general feeling,” Richard Sichel, who oversees $1.6 billion as chief investment officer at Philadelphia Trust Co., said in a phone interview. “We’ve had a good earnings season and better than estimated data last week. The weekend didn’t bring any painful news out of Europe and there are expectations the ECB will buy bonds.”

A four-week rally took the S&P 500 to the highest level since May on Aug. 3. Spanish and Italian two-year notes climbed for a fourth day amid speculation the European Central Bank will buy the securities in an attempt to calm euro-region turmoil. About 73 percent of the S&P 500 companies which reported second- quarter results have beaten analysts’ earnings estimates even as 59 percent missed sales projections, data compiled by Bloomberg show.

Caterpillar, Alcoa

Raw-material and technology shares gained the most among 10 groups in the S&P 500. Bank of America increased 2.6 percent to $7.62. Caterpillar rose 2 to $86.70. Alcoa added 1.8 percent to $8.52. Hewlett-Packard Co. (HPQ) surged 2.6 percent, the most in the Dow, to $18.74.

Cognizant Technology Solutions Corp. (CTSH) climbed 11 percent to $64.23. The provider of consulting and outsourcing services reported earnings and sales that beat analysts’ projections.

Best Buy surged 12 percent to $19.69. Schulze, who stepped down as chairman this year, offered to take the electronics retailer private at $24 to $26 a share, according to a copy of a letter he sent to the board today. Credit Suisse Group AG, Schulze’s financial adviser, is confident it can obtain financing for an offer, according to a draft of the letter obtained by Bloomberg News.

Regions Financial

Regions Financial added 1.9 percent to $7.06. The Birmingham, Alabama-based company had its recommendation raised to buy from neutral at Bank of America.

Knight plunged 21 percent to $3.21. The firm received a $400 million cash infusion through the sale of convertible securities after trading losses spurred by a software failure drove the market maker to the brink of bankruptcy.

When Bill Gross started Pimco’s most recent effort to expand into stocks three years ago, he vowed not to repeat the mistake he made in the 1980s, when his bond traders overwhelmed a handful of equity managers at strategy meetings, eventually prompting them to quit.

Last week, the manager of the world’s largest bond fund at Pacific Investment Management Co. in Newport Beach, California, compared long-term returns from equities to a “Ponzi scheme” and said returns of 6.6 percent above inflation, known as the Siegel Constant, won’t be seen again. “The cult of equity is dead,” Gross, 68, said in an Aug. 2 interview with Betty Liu on Bloomberg Television.

“I can imagine the equity managers cringed the same way corporate-credit managers cringed when he said earlier in the decade he wouldn’t buy a corporate bond at any price,” said Bill Powers, who worked at Pimco from 1991 until 2010 and was a member of its investment and executive committees. “Bill will always speak his mind about value in the markets.”

Full article:

http://www.bloomberg.com/news/print/2012-08-06/u-s-stock-futures-rise-mastercard-advances.html

US banks lending too???

http://www.bloomberg.com/news/2012-08-06/bank-loans-at-post-recession-peak-support-u-s-growth.html

PS.  DOW following thru from last Friday's rally, hope it lasts until tomorrow as Canadian markets play catch up.  When is next dip, can it rally higher?  That is a good question, can everyone time it right?  Not me.  Can pros time it right?  We are only as good as our last call!

Cheers,

Dave.