Bloomberg News

U.S. Stocks Climb After Obama Backs Deficit Plan; Apple Rallies

July 19, 2011

July 19 (Bloomberg) -- U.S. stocks rose, sending the Standard & Poor’s 500 Index to its biggest rally since March, as President Barack Obama endorsed a bipartisan deficit-reduction plan. Equity futures rose after U.S. markets closed as Apple Inc.’s profit topped estimates on record iPhone and iPad sales.

International Business Machines Corp. and Coca-Cola Co. climbed 5.7 percent and 3.3 percent, respectively, as they led a group of companies reporting higher-than-estimated earnings. All 12 stocks in an S&P gauge of homebuilders advanced after U.S. housing starts increased to a five-month high. Bank of America Corp. fell 1.5 percent after reporting the biggest quarterly loss in its history.

The S&P 500 gained 1.6 percent to 1,326.73 at 4 p.m. in New York, rebounding from a three-week low. The Dow Jones Industrial Average advanced 202.26 points, or 1.6 percent, to 12,587.42. Nasdaq-100 Index futures contracts expiring in September climbed 0.7 percent to 2,405.25 at 5:07 p.m. in New York.

“It’s a combination of the good corporate earnings and the market is looking for a relief rally from debt-ceiling and deficit negotiations,” said Eric Teal, chief investment officer at First Citizens Bancshares Inc. in Raleigh, North Carolina, which manages $4 billion. “Obama’s support reduces the risk there’s no deal by Aug. 2. It shows both sides are working hard to get a deal.”

Debt Worries

The S&P 500 declined 4.3 percent through yesterday from a three-year high in April amid speculation that the sovereign debt crisis in Europe is spreading across the region and concern that U.S. lawmakers will fail to reach a deal on raising the nation’s debt limit before the Aug. 2 deadline. The drop has left the gauge trading at 15 times reported earnings, the cheapest this month, according to data compiled by Bloomberg.

The S&P 500 has still rallied 96 percent since March 2009 as the Federal Reserve maintained a policy of record-low interest rates and emergency stimulus to spur growth in the world’s largest economy.

U.S. stocks extended gains as Obama embraced a $3.7 trillion debt-cutting plan by a bipartisan group of senators that would combine tax increases and spending cuts, saying it could end a congressional deadlock over raising the U.S. borrowing limit. The news spurred optimism that lawmakers will reach an agreement that will help the nation avoid default.

The plan is “a very significant step,” Obama said in remarks at the White House.

Earnings Season

Positive earnings reports pushed shares higher earlier. Among the 41 companies in the S&P 500 that posted results since July 11, 35 beat the average analyst estimate for per-share profit, data compiled by Bloomberg show.

Nasdaq futures rallied after Apple reported profit in the third-quarter was $7.79 a share, exceeding the $5.87 predicted by analysts on average, as the Cupertino, California-based company had record sales of iPhones and iPad tablets. The shares rose 5.7 percent to $398.21.

Yahoo! Inc., the most-visited U.S. Web portal, reported after the U.S. market closed that sales fell short of estimates as marketers shunned its pages in favor of rival sites. The shares slipped 1.6 percent to $14.36.

IBM, the biggest computer-services company, climbed 5.7 percent to a record $185.21, for the largest advance in the Dow during regular trading. The Armonk, New York-based company reported sales that beat analysts’ estimates and lifted its profit forecast amid buoyant demand for software. Second-quarter revenue rose 12 percent to $26.7 billion. That topped $25.4 billion, the average estimate of analysts surveyed by Bloomberg.

Technology Rally

Technology stocks were the best performers among 10 groups in the S&P 500, rising 2.7 percent, the most since July 2010, following IBM’s better-than-estimated earnings. Microsoft Corp. jumped 3.6 percent to $27.54, Intel Corp. climbed 3.5 percent to $23.06, Oracle Corp. increased 3.7 percent to $32.64 and Broadcom Corp. gained 6.2 percent to $34.68.

Coca-Cola rose 3.3 percent to $69.32. The world’s largest soft-drink maker posted second-quarter earnings and sales that exceeded the average analyst estimate, helped by sales in Latin America and Asia. The company also said it plans to buy back at least $2.5 billion worth of shares by the end of the year.

Goldman, Bank of America

Goldman Sachs Group Inc. slumped 0.7 percent to $128.49 after earlier falling as much as 3 percent. The fifth-biggest U.S. bank by assets reported second-quarter profit that fell short of analysts’ estimates as fixed-income trading revenue plunged 63 percent from the previous quarter. Net income was $1.85 a share, compared with the $2.30 per share average estimate of analysts in a survey.

Bank of America declined 1.5 percent to $9.57, the worst performing stock in the Dow. The bank reported a quarterly loss of $8.83 billion, the biggest in its history, as it booked more costs tied to defective mortgages and revenue continued to slide.

Homebuilders advanced after housing starts in the U.S. rose more than forecast in June to the highest level in five months, led by a surge in multifamily dwellings. D.R. Horton Inc. climbed 5.7 percent to $11.93. Lennar Corp. gained 6.6 percent to $18.52. PulteGroup Inc. rose 3.5 percent to $7.18.

Housing Starts

Work began on 629,000 houses at an annual pace, up 15 percent from the prior month, figures from the Commerce Department showed. The level of starts exceeded the most optimistic forecast in a Bloomberg News survey of economists. Building permits, a sign of future construction, unexpectedly climbed 2.5 percent.

Harley-Davidson Inc. rallied 8.9 percent to $45.11, the biggest gain in the S&P 500. The largest U.S. motorcycle maker reported a 37 percent increase in profit, beating analyst estimates, as it boosted home market sales for the first time in almost five years and said it will ship more bikes than previously planned.

News Corp. rose 5.5 percent to $15.79. Chairman and Chief Executive Officer Rupert Murdoch told U.K. lawmakers that he wasn’t responsible for the phone-hacking scandal at New Corp.’s News of the World newspaper, saying that the blame lies with the “people that I trusted to run it.”

The company is considering elevating Chief Operating Officer Chase Carey to chief executive officer to succeed Murdoch, said people with knowledge of the situation. A decision hasn’t been made, said the people, who weren’t authorized to speak publicly. News Corp. shares dropped 17 percent from July 5 through yesterday.

Mosaic Co. gained 3.1 percent to $68.49. North America’s second-largest fertilizer producer posted earnings and sales that exceeded the average analyst projection.

--With assistance from Adam Haigh in London. Editors: Jeff Sutherland, Michael Regan

To contact the reporter on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net


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