S&P 500 advances to five-year high on better-than-forecast data

BofA Slumps

Bank of America slumped 4.1%, the most in the Dow, to $11.30 after saying profit dropped 63%, hurt by shrinking revenue and more costs from cleaning up bad mortgages.

Citigroup Inc. retreated 3.1% to $41.17. The third-biggest U.S. bank by assets reported a profit increase that was less than analysts estimated as litigation costs rose and benefits from releasing loan-loss reserves declined.

“I think people who haven’t been discriminating among banks will probably be more discriminating now,” Jeffrey Davis, who oversees $5 billion as chief investment officer at Lee Munder Capital Group in Boston, said in a telephone interview. “The banks were a very important macro play last year with attractive valuations. Now, you’re at a higher level with them where you’re starting to pay more attention to the differences.”

SLM Corp. declined 2.5% to $16.86. The student lender known as Sallie Mae reported a drop in fourth-quarter profit as charge-offs increased, offsetting a climb in originations.

S&P 500 Calls

Laszlo Birinyi, among the first to advise buying U.S. stocks before the bull market began in 2009, said he purchased options to bet the S&P 500 will rally more than 8% by the end of the year.

Birinyi said he bought an unspecified amount of $160 calls on the SPDR S&P 500 ETF Trust that expire in December on speculation more investors will be attracted to the rally that’s more than doubled the benchmark gauge of U.S. equities since March 2009.

“This is where the fireworks begin,” Birinyi, the president of Birinyi Associates Inc. in Westport, Connecticut, said today during the Bloomberg Global Markets Summit in New York. “The last phase of the bull market is very strong.”

Investors are returning to the stock market and poured a record $3.1 billion into U.S. equity mutual funds in the first week of January, according to data compiled by research firm EPFR Global. They had withdrawn almost $250 billion the last four years, even as the S&P 500 rallied 118% and strategists from Birinyi to Citigroup Inc.’s Tobias Levkovich forecast higher prices as earnings climbed.

Bloomberg News

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