Bloomberg News

Dow Caps Biggest Gain in One Month Amid Draghi’s Pledge

August 14, 2012

The Dow Jones Industrial Average (INDU) capped its biggest advance in almost a month after European Central Bank President Mario Draghi pledged to defend the euro.

3M Co. (V:US), the maker of Post-It Notes, and Visa Inc., the world’s largest payments network, rose at least 2 percent amid better-than-estimated earnings. PulteGroup Inc. (PHM:US), the nation’s largest homebuilder by revenue, surged 18 percent on a jump in orders. Sprint Nextel Corp. (S:US) and MetroPCS Communications Inc. rallied more than 20 percent after their results. Facebook Inc. (FB:US) fell 9.8 percent at 5:23 p.m. New York time after posting a narrower profit margin as sales and marketing costs surged.

Seven stocks rose for every three falling on U.S. exchanges at 4 p.m. New York time. The Standard & Poor’s 500 Index added 1.7 percent to 1,360.02. It fell 2.8 percent over the previous four days. The Dow gained 211.88 points, or 1.7 percent, to 12,887.93. Volume for exchange-listed stocks in the U.S. was 7.7 billion shares, or 15 percent above the three-month average.

“It is a big deal,” said Liz Ann Sonders, the New York- based chief investment strategist at Charles Schwab Corp., which has $1.8 trillion in client assets. “The markets have been looking for a more definitive acknowledgement by key people like Draghi that they are willing to do what they need to do. We feel that if they want to save the euro, it would involve true QE,” she said, referring to bond buying to stimulate the economy.

Global stocks rallied and the euro rose by the most in almost a month against the dollar after Draghi suggested policy makers may intervene in bond markets as surging yields in Spain and Italy threaten the existence of the 17-nation currency bloc. The ECB mothballed its bond-buying program in March as it pushed governments to do more to control their deficits.

Earnings Season

All 10 industries in the S&P 500 gained today as earnings at about 72 percent of the 271 companies in the measure which have reported second-quarter results exceeded analysts’ projections, according to data compiled by Bloomberg.

The bull market in American equities is intact and the S&P 500 will probably reach 1,380 (SPX) within the next few months and rally from there, according to Laszlo Birinyi, president of research and money-management firm Birinyi Associates Inc. in Westport, Connecticut. He said concern about second-quarter earnings are overblown and too many investors are worried about a “worst-case” outcome for stocks.

“It will be, as it has been, a case of three steps forward, two backward and trends lasting one day or five hours,” wrote Birinyi in a note to clients. The former Salomon Brothers Inc. equity trader, who described his forecast as “1,380 later this summer, and then higher,” said in the note: “Despite the frustrations of July with its volatility and curious price activity, we remain optimistic.”

July’s Loss

Today’s rally trimmed this month’s drop in the S&P 500 to 0.2 percent. The Chicago Board Options Exchange Volatility Index, which measures the cost of using options as insurance against declines in the S&P 500, slumped 9.4 percent to 17.53. Earlier this week, the VIX (VIX) ended at the highest since June 15 amid concern about a global slowdown and Europe’s debt crisis.

3M (MMM:US) rallied 2.1 percent to $90.59. Second-quarter profit beat estimates as gains in efficiency helped trump a drag from foreign-exchange rates. 3M had to overcome a stronger dollar that eroded the value of local-currency sales outside the U.S.

Visa rose 3.7 percent to $126.77. It has benefited from a consumer shift from cash to electronic payments that shows no signs of abating, while parrying threats to its business model.

A measure of homebuilders in S&P indexes climbed 6.4 percent. PulteGroup soared 18 percent, the most since 2008, to $11.86 after the company reported profit that beat analysts’ projections amid a 32 percent jump in orders.

Phone Shares

Better-than-estimated earnings also drove a surge in telephone shares. The group rose the most among 10 industries in the S&P 500 today, adding 3 percent.

Sprint Nextel rallied 20 percent, the most since 2009, to $4.05. Sales at the wireless carrier were bolstered by customers spending more on data plans. Even so, its contract subscriber base has shrunk for five years, contributing to 19 straight quarterly losses.

MetroPCS Communications (PCS:US) soared 37 percent, the most since it went public in 2007, to $8.59. The pay-as-you-go wireless carrier reported second-quarter earnings that beat estimates amid a decrease in promotional costs.

Akamai Technologies Inc. (AKAM:US), which helps businesses deliver data more quickly over the Internet, soared 24 percent to $35.04. The company reported profit (AKMA:US) and revenue that beat estimates, benefiting from the growth of cloud computing.

Western Digital

Western Digital Corp. (WDC:US) jumped 21 percent, the most since 2002, to $39.27. The maker of disk drives and networking products reported fiscal fourth-quarter sales and profit that topped analysts’ estimates.

Whole Foods Market Inc. (WFM:US) climbed 11 percent, the biggest gain since February 2011, to $94.10. The largest U.S. natural- goods grocer reported third-quarter profit that rose more than analysts estimated and boosted (WFM:US) its annual earnings forecast as sales gained at established stores.

Moody’s Corp. (MCO:US) rose 11 percent to $40.09 after the world’s second-largest provider of credit ratings reported second- quarter profit that beat analyst estimates.

The New York Times Co. (NYT:US) gained 11 percent to $7.80. The newspaper publishing company reported a narrower loss (NYT:US) in the second quarter amid a gain in digital subscriptions.

CBS Corp. (CBS:US) jumped 4.9 percent to $32.63. The owner of the most-watched U.S. television network will raise its quarterly dividend 20 percent to 12 cents and expand a stock buyback program to as much as $4.7 billion.

Economic Data

Stocks rose even as data showed that a slump in June orders for equipment signals business investment may cool in the second half of the year. Jobless claims fell more than forecast last week, which may have resulted from difficulty adjusting data for seasonal shutdowns of auto factories.

Facebook fell 8.5 percent today ahead of its results as Zynga Inc. (ZNGA:US) missed analysts’ second-quarter revenue and profit estimates. The biggest developer of games played on Facebook’s social network plunged 37 percent to $3.18 today.

After the close of regular trading, Facebook slumped 9.8 percent to $24.22. Marketing and sales expenses jumped more than fourfold. Chief Executive Officer Mark Zuckerberg is spending more to increase the user base, which swelled to 955 million last quarter, and seeks to attract advertisers.

“Ultimately, Facebook is just an advertising platform, and so advertisers go where people’s eyeballs are,” said Michael Pachter, an analyst at Wedbush Securities Inc. Based on the number of users Facebook has amassed, “they’ve built the third- largest country; it just happens to live on the Internet.”

Starbucks’ Results

Starbucks Corp. (SBUX:US), the world’s largest coffee-shop chain, also reported results after the market closed. Third-quarter profit rose less than analysts estimated amid weak demand in Europe. The shares lost 10 percent to $47.15 after the close of regular trading.

Raw material companies had the smallest advance in the S&P 500 among 10 industries today. Dow Chemical Co. (DOW:US) slumped 3.6 percent to $29.18. The chemical company reported a bigger drop in earnings and sales than analysts estimated and said the outlook for global demand for the rest of the year is “bleak.”

Cliffs Natural Resources Inc. (CLF:US) slid 6.3 percent to $38.57, the lowest since 2009. The largest U.S. iron-ore producer forecast (CLF:US) higher costs and lower prices.

Airline (BUSAIRL) stocks fell, giving a benchmark index its longest decline in two years, after United Continental Holdings Inc. (UAL:US) posted a quarterly profit that missed analysts’ estimates. United slid 5.9 percent to $19.20 to pace the Bloomberg U.S. Airlines Index toward an eighth straight daily drop, the longest streak since 2010. The index slumped 0.8 percent today.

Education Stocks

The Bloomberg U.S. For-Profit Education Index fell 5.1 percent, to the lowest level since the data started being compiled in 2005 (USEDU), after ITT Educational Services Inc. (ESI:US) and Strayer (STRA:US) Education Inc. said student enrollment declined in the second quarter. ITT Educational sank 15 percent to $42.78, and Strayer plunged 12 percent to $79.44.

Boston Scientific Corp. (BSX:US) slid 6.8 percent to $4.97. The second-biggest U.S. heart device-maker fell as sinking demand for stents and defibrillators led to a fourth consecutive quarterly sales drop (BSX:US).

Cash America International Inc. (CSH:US) dropped 19 percent, the most since 2005, to $36.69. The world’s largest pawn shop operator posted results (CSH:US) that missed estimates and said third- quarter earnings will be lower than last year.

Anyone buying Apple (AAPL:US) Inc.’s stock after last quarter’s sales shortfall at the iPhone maker has history on their side, according to Gene Munster, a Piper Jaffray Cos. analyst.

Disappointing Revenue

A study shows how Apple performed after four earlier cases of disappointing quarterly revenue, as tracked by Munster. They occurred in fiscal 2006, 2007, 2008 and 2011, with iPhone sales trailing estimates in the latter case. Six months later, the shares were 23 percent higher on average.

“It’s going to be an in-vogue stock again shortly,” Munster said yesterday in a Bloomberg Radio interview. He cited the pending introduction of the next iPhone model, known as the iPhone 5, which he expects in October. “We’re going to see a significant rebound in the December quarter, and that’s probably an understatement,” he said.

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net


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Companies Mentioned

  • V
    (Visa Inc)
    • $213.37 USD
    • 2.44
    • 1.14%
  • PHM
    (PulteGroup Inc)
    • $17.66 USD
    • -0.08
    • -0.45%
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