Bloomberg News

U.S. Stocks Rise, Oil Slips as Investors Weigh Earnings, Economy

July 22, 2013

Copper Leads Metals Higher as European Stocks Rise on U.S. Data

Copper increased 1 percent. Photographer: Chris Ratcliffe/Bloomberg

U.S. stocks rose while oil fell as investors analyzed corporate earnings and home sales to gauge the prospects for continued central bank stimulus. Copper and gold rallied while the yen strengthened.

The Standard & Poor’s 500 Index rose 0.2 percent at 4 p.m. in New York, climbing to a record. The Stoxx Europe 600 index added 0.2 percent. Oil tumbled 1.1 percent from a 16-month high, while copper increased 1.4 percent and gold jumped the most in more than a year. Portugal’s bonds climbed and the yen strengthened 1.1 percent against the dollar.

McDonald’s Corp. slipped 2.7 percent after revenue missed forecasts, while sales of previously owned U.S. houses unexpectedly dropped in June. Japanese Prime Minister Shinzo Abe’s ruling coalition faces the challenge of maintaining unity and public support after cementing control of both houses of parliament on a platform of economic revival.

“The earnings reflect a growing economy, but not a robust economy, not a runaway economy,” John Carey, a fund manager at Boston-based Pioneer Investment Management Inc., said by telephone. His firm oversees $211.5 billion. “There was concern that the economy may be doing a little better than the Fed was estimating and that might lead to an earlier tapering. Now with fairly modest economic growth and slow earnings growth, I don’t think people are going to be as worried about the tapering.”

The S&P 500 (SPX) rallied 0.7 percent last week to a record, as companies reported higher-than-estimated earnings and Fed Chairman Ben S. Bernanke said the central bank remains flexible about the duration of its asset-purchase program. Fed stimulus and corporate earnings have helped fuel a surge in stocks worldwide, with the S&P 500 jumping as much as 151 percent from its March 2009 low.

Earnings Season

Of the 108 companies on the gauge to have already reported quarterly results, 71 percent have exceeded analysts’ profit estimates and 52 percent have beaten sales projections, data compiled by Bloomberg show.

Investors have increasingly turned to stocks this month. Investors added $10.2 billion to U.S. equity exchange-traded funds last week, bringing the total in July to $29.7 billion, according to data compiled by Bloomberg. Mutual funds that invest in U.S. equities had $4.55 billion of inflows during the week through July 10, ending seven consecutive weeks of withdrawals.

Individuals have 69 percent of their assets in mutual funds, almost a percentage point more than the average since 1992 and four points more than in 2012, Goldman Sachs Group Inc. said in a note to clients. Investors are demonstrating the “strongest risk appetite in five years,” according to the note dated July 19.

‘Pretty High’

“What we’ve seen since June is market participants reengage pretty actively,” Arvin Soh, a New York-based portfolio manager with GAM, said in a phone interview. His firm has more than $48 billion under management. “Confidence is pretty high at least toward the opportunity set. Broadly, managers are trying to differentiate their trade a little more.”

Treasury 10-year note yields were little changed at 2.48 percent. Pacific Investment Management Co.’s Bill Gross said yesterday the Fed won’t tighten policy until 2016 at the earliest. Ten-year yields had climbed to the highest since August 2011 this month after Bernanke said in June the central bank could reduce asset purchases this year if policy makers saw a sustainable economic recovery.

Homebuilders Slump

Newmont Mining Corp. climbed 5.8 percent, leading gains among gold producers, as the metal’s price surged. McDonald’s slipped 2.7 percent after revenue missed forecasts. Yahoo Inc. dropped 4.3 percent after saying activist investor Daniel Loeb is leaving the board. Homebuilders fell, with D.R. Horton Inc. losing 2.2 percent, as sales of previously owned houses unexpectedly dropped in June.

Purchases of existing U.S. houses fell 1.2 percent to a 5.08 million annualized rate, the National Association of Realtors reported today in Washington. The median forecast of 79 economists surveyed by Bloomberg called for a 5.26 million pace. The pace of the demand was the second strongest since November 2009 following May’s downwardly revised 5.14 million rate.

The broadest rally in U.S. stocks since at least 1990 has lifted shares of everything from the smallest companies to the biggest banks, signaling the bull market for America’s largest corporations will last at least until the end of the year, if history is a guide.

Index Highs

The S&P 500’s advance to a record last week coincided with highs in the Russell 2000 Index of smaller companies, the Dow Jones Transportation Index, the S&P 500 Financials Index and a gauge of economically sensitive equities overseen by Morgan Stanley. Since 1990, the S&P 500 has gained for six months on average after those measures peaked, according to data compiled by Bloomberg.

While bears say the breadth shows indiscriminate buying just as profit growth slows and the Fed prepares to curtail stimulus, gains across stock measures have proved an accurate forecaster of performance. In four market tops during the last 23 years, small-cap stocks and the cyclical gauge never peaked after the S&P 500.

“It is pretty broad slice of America you are looking at,” John Manley, who helps oversee $222.7 billion as chief equity strategist for Wells Fargo Funds Management in New York, said in a July 17 phone interview. “What that is saying is that you have an economy that is improving somewhat, but the market has not been hyper-extended and the Fed is still accommodative. What’s not to like about that?”

Volatility Index

The Chicago Board Options Exchange Volatility Index, or VIX, slid 2 percent today to 12.29, the lowest level since April 12. The equity volatility gauge, which moves in the opposite direction as the S&P 500 about 80 percent of the time, reached a six-month high in June and has since fallen 40 percent.

In Europe, the volume of shares changing hands in Stoxx 600 companies was 24 percent less than the 30-day average today, according to data compiled by Bloomberg.

UBS (UBSN) advanced 2.5 percent as Switzerland’s largest bank reported an increase in second-quarter profit and said it reached an agreement in principle with the U.S. Federal Housing Finance Agency to settle claims related to residential mortgage-backed securities offerings between 2004 and 2007. Royal Philips Electronics NV climbed 2.1 percent in Amsterdam trading after second-quarter earnings jumped 30 percent.

Royal KPN NV surged 13 percent. Telefonica SA has revived negotiations to take over KPN’s German mobile-phone business in an attempt to consolidate in one of Europe’s most competitive wireless markets.

Copper, Gold

The S&P’s GSCI Index of 24 raw materials slid 0.3 percent as West Texas Intermediate fell 1.1 percent to $106.91 a barrel on the New York Mercantile Exchange, reversing an earlier advance of as much as 0.7 percent. Oil settled at $108.05 on July 19, the highest closing price since March 2012.

Gold increased 3.3 percent, the most since June 2012, to $1,337.30 an ounce on speculation that the Fed will maintain U.S. economic stimulus, boosting the appeal of the precious metal as a store of value. Copper rose to $3.185 a pound after reaching $3.215 earlier, the highest level in almost six weeks. Silver jumped 5.4 percent.

Japanese Shares

Japanese shares advanced as Abe’s Liberal Democratic Party and its New Komeito ally secured a majority of at least 135 seats in the upper house, according to estimates by state broadcaster NHK. The LDP has controlled the lower house since elections in December.

Japan’s Nikkei 225 Stock Average rose 0.5 percent and the Topix Index was up 0.4 percent.

The yen strengthened 0.8 percent to 131.26 per euro, after weakening in the previous three trading days. The 17-nation shared currency added 0.3 percent to $1.3186. The Bloomberg Dollar Index, which tracks the greenback against 10 major currencies, dropped 0.4 percent to the lowest since June 19.

Portugal’s 10-year bond yield fell 41 basis points to 6.39 percent after earlier reaching 6.31 percent, the lowest since June 20. The two-year note yield dropped 43 basis points to 4.67 percent.

Portuguese President Anibal Cavaco Silva said the government of Prime Minister Pedro Passos Coelho would stay in office until its term ends in 2015 and reaffirmed he doesn’t want to call early elections. He made the comments after ruling coalition parties and the main opposition Socialists were unable to agree on measures to complete a European Union-led bailout plan after six days of talks.

Italy’s 10-year bond yield fell nine basis points to 4.31 percent and Spain’s dropped seven basis points, to 4.61 percent.

The MSCI Emerging Markets Index rose for the first time in three days, adding 0.4 percent. The Shanghai Composite Index gained 0.6 percent. The Hang Seng China Enterprises Index of mainland shares listed in Hong Kong fell 0.4 percent as banks declined after China removed a floor on lending rates. Russia’s Micex Index dropped 0.6 percent.

To contact the reporters on this story: Rob Verdonck in London at rverdonck@bloomberg.net; Lu Wang in New York at lwang8@bloomberg.net

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


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