COMMENTARY | COLUMNISTS | GEORGE CHAMBERLIN

S&P 500 rises most in one month as investors watch budget talks

Renewed discussions Monday between Congress and the Obama administration raised hopes the pending "fiscal cliff" could be avoided and pushed stock prices higher.

The Dow Jones Industrial Average gained 100.38 points to 13,235.39. The Nasdaq Composite Index was up 39.27 points to 3,010.60, and the S&P 500 Stock Index added 16.78 points to 1,430.36.

Republican House Speaker John Boehner met again with administration officials to discuss tax increases on high-income individuals and cuts in government spending. However, no word on progress in the discussions was publicly reported.

Commodity prices moved higher. Oil was up 47 cents to $87.20 a barrel, and gold gained $1.20 to $1,698.20 an ounce.

“It’s a historic tug of war: Pulling on one side is the fiscal cliff, pulling the other side is continued global monetary easing,” said David Sowerby, a portfolio manager at Boston-based Loomis Sayles & Co. His firm oversees about $175 billion. “The most positive thing for the market is valuation and an accommodative Fed policy.”

President Barack Obama is considering a possible budget concession on Social Security cost-of-living increases after Boehner dropped his opposition to raising tax rates for some top earners, said two people familiar with the talks. Senate Majority Leader Harry Reid, a Nevada Democrat, said today it appears the chamber will need to reconvene Dec. 26 to work on the budget.

Manufacturing in the New York region shrank more than forecast in December, showing weakness in the industry is persisting as the year draws to a close.

American International Group Inc. (NYSE: AIG) climbed 3 percent to $34.95. The insurer plans to sell out of AIA Group, exiting the business from which it was formed in Shanghai in 1919. AIG is selling about 1.65 billion shares in Hong Kong-headquartered AIA at HK$29.65 to HK$30.65 each, according to a term sheet obtained by Bloomberg News.

Tenet Healthcare Corp. (NYSE: THC) climbed 1.8 percent to $31.18. The hospital chain was raised to "buy" from "hold" by Deutsche Bank, which said the company’s 2013 growth will “stand out.”

Compuware Corp. (Nasdaq: CPWR) surged 13 percent to $10.76. Elliott Management Corp., which owns 8 percent of the software maker, offered to acquire the company for $2.3 billion, or $11 a share.

An index of homebuilders rallied 4.5 percent, the most since Oct. 3, as all its 11 members gained. A Wells Fargo & Co. (NYSE: WFC) monthly survey of homebuilding sales managers showed that 1 percent of respondents lowered prices in November, the fewest in seven years. Lennar Corp. (NYSE: LEN) climbed 4 percent to $38.80. D.R. Horton Inc. (NYSE: DHI) added 5.1 percent to $19.69 while PulteGroup Inc. (NYSE: PHM) gained 5.3 percent to $18.04.

Smith & Wesson Holding Corp. (Nasdaq: SWHC) led a decline in stocks of firearms makers amid talks about gun control following last week’s elementary school shooting that left 20 children dead. Smith & Wesson dropped 5.2 percent to $8.66, after a 4.3 percent loss on Friday.

J.C. Penney Co. (NYSE: JCP) fell 1.6 percent to $20.64, ending a seven-day, 20 percent gain. The department-store company is “resuming a more aggressive promotional stance” to boost store traffic, said Brian Nagel, an analyst with Oppenheimer & Co. While the strategy may help strengthen its cash holdings, the recent stock rebound might not prove sustainable, Nagel said in a note today.

Clearwire Corp. (Nasdaq: CLWR) slumped 14 percent to $2.91. The company’s board agreed to a sweetened, $2.97-a-share takeover bid from its wireless partner Sprint Nextel Corp. (NYSE: S), which is now offering $2.2 billion to acquire the portion of Clearwire it doesn’t already own. Shares of money-losing Clearwire jumped above $3 last week after Sprint made an initial $2.90-a-share offer, a sign that investors were anticipating a higher bid.

The U.S. budget debate is holding stocks hostage, as chief executive officers prepare to cut capital spending for the first time since 2009 should Obama and Congress fail to reach an accord.

Expenditures by S&P 500 companies will fall 1.3 percent in 2013 after three years of growth, according to more than 10,000 analyst estimates compiled by Bloomberg. Companies from Verizon Communications Inc. (NYSE: VZ) to Rockwell Collins Inc. (NYSE: COL) said they don’t plan to boost investment amid concern political leaders will fail to agree on a plan to avert the fiscal cliff.

Bears say CEO pessimism will sap the rally, and note that the last time capital spending declined was at the end of 2008, just before stocks slumped to a 12-year low. Bulls point out that estimates for corporate spending show any decline will be limited and say the improving U.S. economy will lift equity valuations, now 12 percent below the 58-year average, Bloomberg data show.

“In an environment where the economic and political outlook is highly uncertain, it is hard for executives to make investment decisions,” said Abi Oladimeji, who helps oversee $4.3 billion as head of investment strategy at Thomas Miller Investment Ltd. in London. “The danger is that we see policy errors, which could undermine equity markets and the broader economy.”

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