U.S. Stocks Rise on Canceled Referendum
By Rita Nazareth – Nov 3, 2011
U.S. stocks rose, sending the Standard & Poor’s 500 Index higher for a second day, after the Associated Press reported that Greece’s plan to hold a referendum on its bailout has been scrapped.
Qualcomm Inc. (QCOM) jumped 7.3 percent as the maker of mobile- phone chips forecast higher sales than analysts had predicted. Kraft Foods Inc. (KFT), the food company planning to split in two next year, added 3.6 percent after raising its earnings forecast. Jefferies Group Inc. (JEF) pared its loss to 8.4 percent as it said it has no “meaningful net exposure” to European sovereign debt after its shares plunged as much as 20 percent earlier today, triggering stock-market circuit breakers.
The S&P 500 added 0.9 percent to 1,248.66 at 10:49 a.m. in New York. The Dow Jones Industrial Average rose 112.62 points, or 1 percent, to 11,948.66.
“The question is — is Greece in or out?” Michael Mullaney, who helps manage $9.5 billion at Fiduciary Trust in Boston, said in a telephone interview. “Greece falling out of the euro would be the first clog in a machine that might be broken. It does matter if Greece is there. In the meantime, you have the ECB giving you a sign that growth issues have the premier emphasis. This is a drama quite frankly.”
Equities rose yesterday as the Federal Reserve said it is prepared to take action if needed to safeguard the recovery. Stocks fell earlier this week as Greek Prime Minister George Papandreou announced on Oct. 31 a parliamentary confidence vote and his desire to hold a referendum on the rescue pact.
The European Central Bank unexpectedly cut interest rates at President Mario Draghi’s first meeting in charge after euro- area leaders raised the prospect of Greece exiting the monetary union, sending bond yields soaring in Italy and Spain. ECB officials lowered the benchmark interest rate by 25 basis points to 1.25 percent.
European leaders for the first time raised the prospect of the euro area splintering, forcing debt-stricken Greece to decide whether it’s in or out when it holds a referendum on a bailout package next month. German and French leaders holding emergency talks on the eve of a Group of 20 summit today in Cannes, France, withheld 8 billion euros ($11 billion) of assistance.
Earlier today, stocks rose after BBC reported that Papandreou would step down and propose a coalition government headed by former European Central Bank vice-president Lucas Papademos, without saying how it got the information. Later, two officials with the ruling Pasok party said Papandreou won’t resign his post and plans to speak in Parliament in Athens today as scheduled.
“They’re pushing the Greeks to the wall,” Peter Sorrentino, a senior fund manager at Huntington Asset Advisors in Cincinnati, which oversees $14.5 billion of assets, said in a telephone interview. “Either they are in this and make it happen or they get tossed out of the euro zone. It’s a sobering up moment. On top of that, the ECB’s decision to cut rates will take some of the pressure off of the upcoming financing for the Spanish and Italian markets.”
Stocks erased gains earlier after the ECB’s Draghi said Europe is heading toward a “mild recession.” Stocks also fell as a report showed that service industries in the U.S. expanded in October at a slower pace than anticipated as orders waned, a sign the biggest part of the economy is struggling to gain speed.
Qualcomm jumped 7.3 percent to $55.98. The company, which gets most of its profit from licenses on technology used in so- called 3G phones, is benefiting as more consumers switch to the technology — especially in developing countries. Widening use of smartphones fuels growth in royalty revenue and sales of cellular radio chips and processors.
Kraft added 3.6 percent to $35.88. Chief Executive Officer Irene Rosenfeld plans to spin off the North American grocery business by the end of next year to focus on selling snack foods in emerging markets. Food companies such as Kraft, Sara Lee Corp. and General Mills Inc. (GIS) have raised prices on many products this year to make up for higher costs for ingredients such as corn, coffee and sugar.
Estee Lauder Cos. jumped 14 percent to $114.80. The maker of Clinique and Bobbi Brown makeup lines announced plans for a 2-for-1 split. The New York-based company also said it will increase its annual dividend by 40 percent to $1.05 a share.
Jefferies lost 8.4 percent to $11.24. Egan-Jones Ratings Co. downgraded the firm’s creditworthiness to BBB- from BBB, citing “a changed environment” after the collapse of MF Global Holdings Ltd. and saying it was concerned about the size of Jefferies’ $2.7 billion in “sovereign obligations” relative to the investment bank’s equity.
“Recent reports and calculations appear to have been focusing only on long inventory,” which amounted to $2.7 billion and doesn’t include hedges, New York-based Jefferies said in a statement. The firm has net short exposure to Portugal, Italy, Ireland, Greece, and Spain of about $38 million, or about 1 percent of shareholders’ equity, according to the statement.