U.S. Stocks Rally; S&P 500, Dow Surge to Records as Alcoa Soars
By Eric Martin
Alcoa manufacturing plant, Modena, Italy
July 12 (Bloomberg) -- Stocks rallied, sending benchmark indexes to records and the Dow Jones Industrial Average to its biggest gain since 2003, after Wal-Mart Stores Inc.'s sales and a surge in exports improved prospects for economic growth.
Energy, industrial and commodities producers' shares all climbed to all-time highs. Target Corp. hit a peak on speculation activist investor William Ackman took a stake in the second-largest U.S. discount retailer. Aluminum maker Alcoa Inc. led the Dow's 283-point gain, after Rio Tinto Group's plan to buy Alcan Inc. spurred expectations of more takeovers.
Better-than-forecast June sales at Wal-Mart, J.C. Penney Co. and Costco Wholesale Corp. eased concern the housing slump and higher energy prices will cripple consumer spending, which accounts for more than two-thirds of the U.S. economy. Economists raised forecasts for second-quarter growth after a government report showed exports rose to a record in May.
``The general feeling today is that we had surprisingly good reports on retail sales and the big daddy of them all, Wal-Mart, beat estimates,'' said John Wilson, co-director of equity strategy at Morgan Keegan & Co., which oversees $20 billion in Memphis, Tennessee. ``Things look very positive.''
The S&P 500 added 28.94, or 1.9 percent, to 1547.70. The Dow average advanced 283.86, or 2.1 percent, to 13,861.73. Both climbed above their records on June 4. The Nasdaq Composite Index increased 49.94, or 1.9 percent, to 2701.73. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. stocks, also posted a record, surging 270.21, or 1.8 percent, to 15,652.94.
All 10 industries groups in the S&P 500 and all 30 companies in the Dow rose.
European stocks gained for the first time in three days after Rio Tinto's bid. The Stoxx 600 Index rallied 1.2 percent to 397.34.
Wal-Mart advanced $1.15, or 2.4 percent, to $48.83. June sales at U.S. stores open at least a year grew 2.4 percent, exceeding the company's forecast of 2 percent or less and the 0.8 percent projected by analysts.
Target jumped $4.44, or 6.8 percent, to $70.04. Ackman has accumulated a stake of more than 5 percent, a person with direct knowledge of his purchase said.
``When you see someone taking a financial position in a retailer the size of Target, it makes you say `What other deals are possible with the amount of money that's out there?''' said Art Hogan, the Boston-based chief market analyst at Jefferies & Co. ``We had the perfect storm of good news in a relatively volatile market.''
Costco added $1.02 to $61.74 after the largest U.S. warehouse club said June same-store sales increased 6 percent, exceeding the estimate of 5.9 percent.
Abercrombie & Fitch Co. gained $5.70, or 8.2 percent, to $75.08, the steepest jump in the S&P 500. The clothing retailer for teens and college students said June comparable store sales rose 2 percent from a year earlier. Analysts had estimated sales to fall 2.8 percent.
J.C. Penney climbed $4.30 to $75.46. Its 1.5 percent drop in same-store sales was smaller than the estimate for a 3.1 percent decline.
Alcoa rallied $2.86, or 6.7 percent, to $45.29 after Rio Tinto Group, the world's third-largest mining company, agreed to buy Alcan for $101 a share, a 13 percent premium to yesterday's closing price, the London-based company said today in a statement. The offer is 33 percent higher than Alcoa's bid of $76 a share.
BHP Billiton Ltd. will attempt to buy Alcoa ``in a relatively short space of time,'' said John Meyer, a director of mining-equity sales at Numis Securities in London.
Alcoa withdrew its unsolicited bid for Alcan after the close of U.S. exchanges.
Exxon Mobil Corp., the world's biggest energy producer, also helped lift the Dow average, climbing $2.33 to a record $89.62 and pushing the company's market value to almost $504.9 billion.
Stocks also got a boost when forecasts for second-quarter economic growth were raised after the Commerce Department said the U.S. trade deficit in May increased 2.3 percent to $60 billion from $58.7 billion in April. Most of the jump was caused by higher costs for imported oil. U.S. exports climbed to a record $132 billion.
Intel Corp. added $1.43 to $26. Banc of America Securities LLC boosted its stock-price forecast and earnings estimates for the world's biggest maker of semiconductors on ``solid'' demand for its processors. Intel is also expected to report second- quarter sales at the high-end of the company's own forecast, according to analyst Sumit Dhanda.
Advanced Micro Devices Inc. gained 71 cents to $15.36. UBS AG analyst Uche Orji lifted his second-quarter estimates for the second-biggest chipmaker on expectations of ``solid'' demand for PCs. The analyst raised his second-quarter revenue estimate by $22 million to $1.27 billion and trimmed his loss forecast by a cent to 83 cents a share.
Discover Financial Services rose $1.13 to $26.34. Lehman Brothers Holdings Inc. initiated coverage of the fourth-biggest U.S. credit-card network with an ``overweight'' rating and a $28 share-price forecast.
Analyst Bruce W. Harting wrote the company will return money to shareholders through dividends and buybacks and will be more aggressive as an independent company. Discover was spun off from Morgan Stanley at the beginning of the month.
M&T Bank Corp. gained $4.01 to $111.74. The New York lender partly owned by Warren Buffett's Berkshire Hathaway Inc. posted second-quarter earnings that beat analysts' estimates as higher fee income overcame weakness in mortgage banking.
A gauge of financial shares in the S&P 500 climbed 2.2 percent, rebounding from a July 10 sell-off that was spurred by concern the housing recession would hamper earnings.
More than seven stocks rose for every one that fell on the New York Stock Exchange. Some 1.7 billion shares changed hands on the Big Board, 6.6 percent more than the three-month daily average.
Progressive Corp. fell 71 cents to $22.69. The third- largest U.S. car insurer said second-quarter earnings fell 29 percent on higher claim costs and lower prices. The company's profit margin in June was the smallest since Hurricane Katrina struck in 2005.
ImClone Systems Inc. fell $1.17 to $34.73. The company's drug Erbitux failed to slow tumor growth in lung cancer patients, a study found, a setback for ImClone's plan to expand the market for its only product.
The Russell 2000 Index, a benchmark for companies with a median market value of $700 million, gained 1.8 percent to 855.18.
In other economic reports, jobless claims decreased by 12,000 to 308,000 in the week that ended July 7, the Labor Department said. The four-week moving average, a less volatile measure, dropped to 317,750 from 319,250. Economists in a survey had forecast 315,000.
The yield on benchmark 10-year Treasury notes rose more than 4 basis points, or 0.04 percentage point, to 5.13 percent. Crude oil for August delivery fell 6 cents to $72.50 a barrel in New York.
To contact the reporter on this story: Eric Martin in New York at firstname.lastname@example.org