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Saturday, August 13, 2022

U.S. Stocks Rise as Earnings Top Estimates Before Fed

U.S. stocks rose, with the Standard & Poor’s 500 Index reaching a third straight record, as earnings from Pfizer Inc. to Xylem Inc. beat estimates and data indicating slower growth fueled bets the Federal Reserve will maintain stimulus.

Pfizer, the world’s biggest drugmaker, jumped 1.7 percent as the company cut costs and increased drug sales. Masco Corp. (MAS), which makes faucets and kitchen and bath cabinets, rose 3.5 percent as its sales topped forecasts. Xylem Inc. surged 12 percent after the water company whose pumps helped clean tunnels in New York flooded by Hurricane Sandy raised its annual earnings forecast.

The S&P 500 rose 0.5 percent to 1,770.50 at 2:56 p.m. in New York. The Dow Jones Industrial Average gained 101.95 points, or 0.7 percent, to 15,670.88, within 10 points of its all-time closing high. Trading in S&P 500 stocks was in line with the 30-day average at this time of day.

“It still seems that the Fed has created this good news is bad news, bad news is good news scenario,” Randy Bateman, who oversees $15 billion as chief investment officer of Huntington Asset Advisors in Columbus, Ohio, said by telephone. “The anticipation is that the Fed will retain its purchasing of $85 billion in monthly Treasury and mortgage securities, which is going to continue to help the housing market. That will be taken fairly well by the market.”

The S&P 500 climbed in 12 of the past 14 sessions through yesterday, as companies beat estimates in the current earnings reporting season and signs of slower economic growth fueled bets the Fed will maintain stimulus measures after its two-day meeting that started today. The rally has pushed the index up 24 percent this year, leaving it poised for the best annual gain in a decade.

Taper Bets

The 16-day government shutdown earlier this month took at least $24 billion out of the economy and will spur the Fed to wait until March to taper, a Bloomberg survey showed this month. The central bank’s policy makers convene today and tomorrow.

Data today showed retail sales dropped 0.1 percent last month, restrained by the biggest decrease at auto dealers since October 2012. Wholesale prices unexpectedly fell in September as food costs retreated. Inflation has been running below the Fed’s 2 percent objective in the near-term, giving policy makers room to maintain monetary stimulus.

A separate report showed confidence among U.S. consumers declined in October by the most since August 2011 as the budget impasse and debt-ceiling negotiations in Washington took a toll on outlooks.

Weak Data

Weaker-than-forecast data yesterday on factory output and sales of previously owned homes added to concern that growth slowed in the weeks before the shutdown. Home prices in 20 U.S. cities rose in August from a year ago by the most since February 2006, the S&P/Case-Shiller index indicated today.

The Fed’s stimulus has helped propel the S&P 500 up more than 160 percent from a 12-year low in 2009. While the rally lifted equity valuations to a four-year high, with the index trading at 15.9 times estimated operating earnings, that’s still below the multiples at the market’s two previous peaks, when the ratio reached 16.5 in October 2007 and 25.7 in March 2000, data compiled by Bloomberg show.

Some 39 members of the S&P 500 release results today, including Pfizer Inc. and Goodyear Tire & Rubber (GT) Co. Earnings for the broad equity gauge probably increased 3.7 percent in the third quarter as sales climbed 2.4 percent, according to analysts’ estimates compiled by Bloomberg. Profits have grown by an average of 5.7 percent among the 282 companies that have reported so far, while sales have gained 3.5 percent.

‘More Stability’

“We’re seeing some more stability in some of the international markets for exporters and continued modest improvement here in the United states,” Paul Mangus, head of equity strategy and research for Wells Fargo Private Bank in Charlotte, North Carolina, said in a phone interview. His firm manages $170 billion. “You have revenue coming in sluggish, but that was pretty much as expected. Margins have come in a little higher than expectations, so there’s a reason for an improvement in investor confidence.”

The Chicago Board Options Exchange Volatility Index, the gauge known as VIX (VIX) that measures options traders’ estimate of future price swings in the S&P 500, rose 0.9 percent to 13.43. The gauge has lost 19 percent so far this month.

AT&T Rally

Nine of 10 main S&P 500 groups advanced today, with phone and consumer-staples companies rising at least 0.8 percent to pace gains. AT&T Inc. jumped 2.3 percent to $36.39 for the biggest advance in the Dow.

Masco climbed 3.5 percent to $21.65. The company said it had sales of $2.2 billion last quarter, beating the average estimate in a Bloomberg poll of analysts for revenue of $2.1 billion. Adjusted earnings of 27 cents a share also beat projections.

Pfizer rose 1.7 percent to $31.28. Higher sales of its top vaccine and pain drugs also boosted profit. Pfizer is pushing to expand sales of Prevnar, a pneumococcal vaccine and its second-biggest product, since losing marketing exclusivity for Lipitor, once the world’s top-selling drug.

Xylem surged 12 percent to $32.41 for the biggest gain in the S&P 500 and the most since being spun off from ITT Corp. two years ago. A 6 percent rise in orders in the third quarter, an ozone project in China and a pumping and control system for the Singapore Transport Authority helped Xylem post earnings and sales that beat analysts’ estimates

Index Change

Michael Kors Holdings Ltd. climbed 1.2 percent to $77.33. The luxury-goods company founded by the designer of the same name will replace NYSE Euronext in the S&P 500 after the close of trading on Nov. 1, S&P said. NYSE Euronext, the biggest U.S. stock exchange owner, is being acquired by Atlanta-based IntercontinentalExchange Inc.

International Business Machines Corp. rose 2.4 percent to $181.51 for the biggest advance in the Dow. The world’s largest computer-services firm added $15 billion to its stock buyback fund. The company now has $20.6 billion in its repurchase program, and it will request more next October, it said.

Apple Inc. (AAPL) lost 1.4 percent to $522.60. The maker of the iPhone said revenue in the current quarter will be $55 billion to $58 billion, compared with the $55.5 billion average ofanalysts’ estimates. Gross margins will be 36.5 percent to 37.5 percent, versus the 38 percent projection.

Health Insurers

Aetna Inc. (AET) slipped 1.5 percent to $60.83. The third-biggest U.S. health insurer said quarterly profit rose 3.9 percent, boosted by the acquisition of rival Coventry Health Care Inc. Insurer shares have slid this month after the top two carriers, UnitedHealth Group Inc. and WellPoint Inc., gave outlooks for next year that disappointed investors.

The industry faces falling payments from the U.S. Medicare program. Technical issues with the Obamacare rollout also have clouded prospects for new business from the federal health-care law.

Goodyear Tire & Rubber plunged 6.4 percent to $20.63. The company reported third-quarter sales that missed analyst estimates and said consumer demand for original equipment inEurope, the Middle East and Asia may fall 5 percent in the rest of 2013.

Cummins Inc. fell 5.8 percent to $127.11. The engine maker experienced “weak demand for capital goods in most of our major markets,” Chief Executive Officer Tom Linebarger said in a statement. Third-quarter profit of $1.90 a share missed analysts’ average estimate of $2.11, as growth in China and Brazil was offset by weak demand in India, Australia and Europe, according to the statement.

Industrial Stocks

Caterpillar Inc., the maker of construction and mining equipment, slid 0.4 percent to $83.9253 for the steepest drop in the Dow. Joy Global Inc., which manufactures machines for extracting ores and minerals, lost 1.9 percent to $57.59, halting a five-day rally.

MeadWestvaco Corp. plunged 9.3 percent to $35.15 for the biggest drop in the S&P 500. The packaging maker reported adjusted earnings that fell short of estimates.

Seagate Technology Plc lost 3.5 percent to $48.11. The disk drive maker forecast fiscal second-quarter sales below analyst estimates and said it expects demand for its products to remain similar to prior quarters.

American Capital Agency Corp. (AGNC) fell 8.8 percent to $21.78. The real-estate investment trust that buys mortgage debt reported third-quarter spread earnings per share of 58 cents, compared with analysts’ forecast of 81 cents.

A faulty data feed prevented prices for Nasdaq OMX Group Inc.’s benchmark U.S. stock indexes from being disseminated for almost an hour, pausing trading for some options.

The Nasdaq Composite Index and Nasdaq-100 Index were among the measures that stopped updating at about 11:53 a.m. New York time, according to data compiled by Bloomberg. They started moving again at 12:45 p.m., the data show. Individual stocks listed by Nasdaq OMX, such as Apple Inc. and Google Inc., had continued to trade during the outage. Nasdaq shares added 0.3 percent to $35.81, a five-year high on a closing basis.

Source: Bloomberg

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