Stocks up 47; Dow remains above 10,000

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Published: October 15,2009

Oct. 15 (Bloomberg) — U.S. stocks rose as energy shares gained after oil climbed to a one-year high, helping the market reverse an early drop triggered by earnings at Citigroup Inc. and Goldman Sachs Group Inc. that disappointed some investors.

Benchmark indexes climbed to one-year highs for a second day and the Dow Jones Industrial Average extended its advance past 10,000. Exxon Mobil Corp. and Chevron Corp. gained at least 1.5 percent as crude jumped above $77 a barrel, while Sunoco Inc. gained the most in 10 months as Morgan Stanley recommended shares of the largest refiner in the U.S. northeast. Citigroup tumbled 5 percent and Goldman Sachs fell 1.9 percent.

The Standard & Poor’s 500 Index gained 0.4 percent to 1,096.56 at 4:07 p.m. in New York after earlier losing as much as 0.5 percent. The Dow average added 47.08 points, or 0.5 percent, to 10,062.94 after climbing above 10,000 for the first time in a year yesterday.

“As the economy improves, the demand for oil improves, so oil prices have been coming up and the oil companies themselves have been doing really well,” said Larry Seibert , who helps manage $550 million at Avatar Associates in New York. “We would expect the price of oil to fluctuate around this level and trend up over the next few years.”

Earlier declines in stocks also came as a gauge of manufacturing expanded at a slower pace this month. The Federal Reserve Bank of Philadelphia’s general economic index dropped to 11.5, lower than the reading of 12 forecast by economists in a Bloomberg survey.

The cost of living in the U.S. rose at a slower pace in September, showing inflation will not be a threat as the economy emerges from the worst recession since the Great Depression, and jobless claims decreased more than forecast, according to Labor Department reports.

Valuation Watch

The S&P 500, which rebounded 62 percent from a 12-year low in March, is trading at more than 20 times the reported operating earnings of its companies, the highest valuation since 2004. Companies in the index will report a ninth straight quarter of declining profits, the longest streak since the Great Depression, before returning to growth in the final three months of the year, analysts’ estimates compiled by Bloomberg show.

The S&P 500 Energy Index added 2 percent as crude oil rose 3.2 percent to $77.58 a barrel after an Energy Department report showed an unexpected decline in U.S. gasoline stockpiles as refineries idled units for maintenance.

The energy index rose for a ninth straight day and reached its highest level in more than a year.

Refiners Rally

Oil refiners accounted for the three biggest gains in the S&P 500. Morgan Stanley analysts initiated coverage of the refining industry, saying they expect stocks to trade higher through the end of this year. Refiners will increase in value as diesel demand strengthens and production cuts reduce supplies, the analysts said today in a report. They named Sunoco the top pick in the refining industry.

All nine publicly traded independent refiners in the U.S. rose. Sunoco Inc. surged 10 percent to $32.80. Tesoro Corp., the refiner with plants in six Western states, rose 8.6 percent to $15.83. Valero Energy rose 7.1 percent to $20.15.

Goldman Sachs dropped 1.9 percent to $188.63. The bank reported third-quarter profit that more than tripled to $3.19 billion, or $5.25 a share, driven by trading and investments with the firm’s own money. The shares declined as earnings fell short of Goldman Sachs’s record of $3.44 billion.

‘Really Unrealistic’

“There were some people looking for even $6, which was really unrealistic,” said William Dwyer , chief investment officer at Baltimore-based MTB Investment Advisors, which oversees $13 billion. “A lot of momentum had already been built into the stock.”

Citigroup fell 5 percent to $4.75. The lender that’s 34 percent owned by the U.S. government posted a $101 million profit, defying expectations for a loss as the company added the smallest amount to loan-loss reserves in two years.

“They are being overly optimistic on the outlook for loan losses,” Jon Fisher , a fund manager at Fifth Third Asset Management in Minneapolis, which oversees more than $19 billion, said in a Bloomberg Television interview. “We are going to find out in a couple of quarters that they are way under-reserved.”

Financial shares in the S&P 500 fell the most of 10 industries, losing 0.7 percent as a group. The industry had the biggest advance yesterday, rising 3.4 percent to the highest level since November.

“If stocks ramp up surprisingly nicely on a given day, there’s a tendency for people to want to reduce their positions to take advantage of that strength,” said Robert Schaeffer , who helps oversee $2 billion at Becker Capital Management Inc. in Portland, Oregon.

Credit-Card Concern

Credit-card issuers also helped send financial shares lower. JPMorgan and Bank of America Corp., the biggest U.S. card companies, said more customers fell behind on payments in September and Credit Suisse AG forecast losses will mount for at least another year.

Bank of America slumped 2.6 percent to $18.10. Capital One Financial Corp. fell 3.1 percent to $38.12. The third-biggest issuer of Visa Inc. credit cards said delinquent loans rose to 5.38 percent from 5.09 percent.

A group of 12 commercial and professional services companies gained 2.3 percent, the biggest advance among 24 industries. Waste Management Inc., the largest U.S. trash hauler, rose 5.6 percent to $31.63, its highest close since January. Stericycle Inc ., which disposes of used hypodermic needles and other medical treatment byproducts, rose 5 percent to $52.12.

Safeway, Southwest

Safeway Inc. , the third-largest U.S. grocery chain, gained 6.5 percent to $22.83 after third-quarter profit topped analysts’ estimates.

Southwest Airlines Co. , the largest low-fare carrier, fell 5.7 percent to $9.47 for the biggest loss in the S&P 500. Chief Executive Officer Gary Kelly said U.S. carriers face an extended struggle with rising jet-fuel prices and a business-travel slump that shows no signs of ending soon.

Technology shares in the S&P 500 had the second-biggest loss of 10 industry groups after financials.

Nokia Oyj’s U.S. shares fell 11 percent to $13.68, the biggest drop since July. The world’s biggest maker of mobile phones had its first net loss since the company began reporting quarterly in 1996, hurt by costs related to a joint venture with Siemens AG and on weaker demand.

Motorola , the largest mobile-phone maker in the U.S., fell 3.3 percent to $8.13.

Viacom Inc. fell 1.4 percent to $28.52 and CBS Corp. rose 5.7 percent to $13.23. Sumner Redstone’s National Amusements Inc. will sell $945 million of CBS and Viacom shares to repay loans that threatened his control of the two media companies.

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