U.S. stocks advanced, following the longest weekly rally in the Standard & Poor’s 500 Index since March, amid better-than-estimated corporate earnings.
Warren Buffett’s Berkshire Hathaway Inc. (A:US) rose 0.5 percent as profit beat projections. Best Buy Co. (BBY:US) surged 19 percent as founder Richard Schulze offered to take the electronics retailer private. Regions Financial Corp. (RF:US) added 1.7 percent after Bank of America Corp. raised its recommendation on the shares. Knight Capital Group Inc. (KCG:US), the firm driven to the brink of bankruptcy by trading losses last week, tumbled 25 percent.
About five stocks rose for every two falling on U.S. exchanges at 10:02 a.m. New York time. The S&P 500 (SPX) rose 0.5 percent to 1,398.09. The Dow Jones Industrial Average added 77.16 points, or 0.6 percent, to 13,173.33. Trading in S&P 500 companies was down 11 percent from the 30-day average at this time of day.
“There’s better general feeling,” Richard Sichel, who oversees $1.6 billion as chief investment officer at Philadelphia Trust Co., said in a phone interview. “We’ve had a good earnings season and better than estimated data last week. The weekend didn’t bring any painful news out of Europe and there are expectations the ECB will buy bonds.”
A four-week rally took the S&P 500 to the highest level since May on Aug. 3. Spanish and Italian two-year notes climbed for a fourth day amid speculation the European Central Bank will buy the securities in an attempt to calm euro-region turmoil. About 73 percent of the S&P 500 companies which reported second- quarter results have beaten analysts’ earnings estimates even as 59 percent missed sales projections, data compiled by Bloomberg show.
Berkshire’s Class B shares rose 0.5 percent to $85.99. Buffett, 81, built Berkshire over four decades from a failing textile maker into a company that produces energy, hauls freight and sells products ranging from ice cream to underwear. The billionaire chairman and chief executive officer has highlighted his firm’s financial strength to investors and as a lure to the managers of potential target companies.
Best Buy surged 19 percent to $20.98. Schulze, who stepped down as chairman this year, offered to take the electronics retailer private at $24 to $26 a share, according to a copy of a letter he sent to the board today. Credit Suisse Group AG, Schulze’s financial adviser, is confident it can obtain financing for an offer, according to a draft of the letter obtained by Bloomberg News.
Regions Financial added 1.7 percent to $7.05. The Birmingham, Alabama-based company had its recommendation (RF:US) raised to buy from neutral at Bank of America.
Knight plunged 25 percent to $3.03. The firm received a $400 million cash infusion through the sale of convertible securities after trading losses spurred by a software failure drove the market maker to the brink of bankruptcy.
When Bill Gross started Pimco’s most recent effort to expand into stocks three years ago, he vowed not to repeat the mistake he made in the 1980s, when his bond traders overwhelmed a handful of equity managers at strategy meetings, eventually prompting them to quit.
Last week, the manager of the world’s largest bond fund at Pacific Investment Management Co. in Newport Beach, California, compared long-term returns from equities to a “Ponzi scheme” and said returns of 6.6 percent above inflation, known as the Siegel Constant, won’t be seen again. “The cult of equity is dead,” Gross, 68, said in an Aug. 2 interview with Betty Liu on Bloomberg Television.
“I can imagine the equity managers cringed the same way corporate-credit managers cringed when he said earlier in the decade he wouldn’t buy a corporate bond at any price,” said Bill Powers, who worked at Pimco from 1991 until 2010 and was a member of its investment and executive committees. “Bill will always speak his mind about value in the markets.”
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