In the U.S.: Stock Futures Rise on Europe Speculation

6 December 2011

The market appears to have taken a liking to S&P’s threat. This news could have have been interpreted in any number of ways really.

U.S. stock futures rose, indicating the Standard & Poor’s 500 Index will rally a second day, on speculation European leaders may act to contain the debt crisis after S&P put 15 euro nations on review for possible downgrade.

General Electric Co. (GE) and LinkedIn Corp. advanced at least 1.3 percent after analysts raised their recommendations for the shares.Clearwire (CLWR) Corp. slumped 4.4 percent on plans to raise $595 million through two sales of common stock.

S&P 500 futures expiring in December rose 0.2 percent to 1,257 at 8:20 a.m. New York time. The benchmark gauge for American equities gained 1 percent yesterday amid optimism thatEurope will tame its crisis. Dow Jones Industrial Average futures climbed 35 points, or 0.3 percent, to 12,101.

The statement from S&P “should add a little more urgency to politicians to find a solution,” Yusuf Heusen, a sales trader at IG Index in London, wrote in e-mailed comments. “It does feel as if investors are happy for now to give politicians a few more days and await the outcome of this Friday’s latest euro meeting.”

Germany, France and four other nations may lose their AAA ratings depending on the result of a summit of European Union leaders on Dec. 9, S&P said yesterday. German Finance MinisterWolfgang Schaeuble said S&P’s warning will help force European leaders to ratchet up efforts to resolve the crisis. European Central Bank President Mario Draghi will probably cut the benchmark rate a quarter point when policy makers meet Dec. 8, according to 58 economists in a Bloomberg survey.

Hard to Predict

Laszlo Birinyi says he knew it would be hard to make predictions for 2012 in October, when he saw a headline suggesting that markets would rise or fall depending on whether the tiny nation of Slovakia approved a bailout plan for Europe.

Birinyi, president of stock market research and money- management firm Birinyi Associates Inc., says markets are so volatile that it doesn’t take much to send them reeling, reports Bloomberg Markets magazine in its January issue.

“There are so many exogenous factors that to try to forecast the market with a degree of confidence is difficult,” Birinyi says.

The best strategy for stock investors, he says, is to stick with iconic brands, such as Apple Inc. (AAPL) or Ralph Lauren Corp. (RL), and with companies that offer “meaningful dividends” of at least 5 percent.

GE added 1.3 percent to $16.54. Sanford C. Bernstein & Co. raised its recommendation for the Fairfield, Connecticut-based company to “outperform” from “market perform,” citing rising dividends and energy orders starting in 2012.

LinkedIn Jumps

LinkedIn jumped 4.9 percent to $73.40. The biggest professional-networking website was raised to “overweight” from “neutral” at JPMorgan Chase & Co.

Clearwire slumped 4.4 percent to $2.15. The company will raise $300 million from an offering of Class A common shares. Sprint Nextel Corp. (S), which owns a majority of the economic interest in Clearwire, will buy $295 million of Class B shares in a separate, private transaction, said Scott Sloat, a spokesman for Sprint.

The most widely followed “fear gauge” for stocks sends relatively weak signals most of the time about whether to buy or sell, according to Tobias Levkovich, Citigroup Inc.’s chief U.S. equity strategist. During the past four months, the Chicago Board Options Exchange Volatility Index, known as the VIX, fell to 27.84 from a second-half peak of 48.00. The readings are based on the prices paid for S&P 500 options.

“At current levels, the VIX provides little guidance for investing purposes,” Levkovich wrote in a Dec. 2 report. He added that the index “is not that effective as a market-timing tool unless it is at extremes.”

Bigger Gap

When the VIX was less than 30, the S&P 500 had an average gain of 2.9 percent in the next six months, according to the report. At less than 20, the average climbed to 3.8 percent. Levkovich found a bigger gap at 12 months, when increases averaged 6.9 percent when the index was less than 30 and 10.3 percent at less than 20.

Relatively high readings usually preceded larger gains in stocks, according to the report. When the volatility index was above 40, the S&P 500 rose 14 percent for the next six months and 29 percent for the next 12 months on average.


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