Bloomberg News

U.S. Stocks Advance on Google While Bonds Fall With Gold

July 18, 2014

U.S. Stocks

People walk by the New York Stock Exchange on July 17, 2014> Photographer: Spencer Platt/Getty Images

The Standard & Poor’s 500 Index (SPX) rebounded from its biggest loss in three months, as sales that topped analyst estimates at Google Inc., the world’s third-largest company, refocused investors on economic growth amid crises in the Middle East and Ukraine. Treasuries dropped with gold.

The S&P 500 rose 1 percent at 4 p.m. in New York, the most since April 16. Google jumped 3.7 percent to lead technology shares higher after selling more advertising alongside Web-search results. Euro Stoxx 50 futures contracts added 0.6 percent, advancing after the Stoxx Europe 600 Index nearly erased a drop of 0.8 percent to close little changed. Espirito Santo International SA, a holding company that’s part of Grupo Espirito Santo, asked for protection from creditors. The yield on 10-year notes rose thee basis points, while the yen weakened against all but one of its 16 major counterparts. Gold slid 0.6 percent.

“When all these things hit the headlines, there’s a knee-jerk reaction for the day,” Jim Paulsen, who helps oversee $357 billion in assets as chief investment strategist at San Francisco-based Wells Capital Management Inc., said in a phone interview. “This is a terrible tragedy, but the odds of it developing into something that’s going to be a sustained market event are fairly low. You get a lot of investors coming in today and taking advantage of opportunities in the sense of having a re-priced market yesterday.”

Advance Resumed

The gain in the S&P 500 erased almost all of yesterday’s decline, the biggest single-day retreat since April 10, resuming an advance that has added more than $1 trillion to share values in 2014. Stocks rose as Google’s results helped bolster Wall Street forecasts for annual S&P 500 earnings growth of 8.2 percent this year amid an expansion in gross domestic product estimated by economists to exceed 3 percent in the next two quarters.

About 77 percent of the S&P 500 companies that have posted results so far this season beat analysts’ profit projections, and 70 percent topped sales estimates, data compiled by Bloomberg show.

The index of U.S. leading indicators rose in June for the fifth straight month, showing the economy continues to gain momentum following a slowdown at the start of 2014. The Thomson Reuters/University of Michigan preliminary July index of consumer sentiment decreased to 81.3 from 82.5 the prior month.

“We had a bit of a low expectation going into the second quarter given the first quarter,” Jim Russell, who helps oversee $120 billion as a senior equity strategist at U.S. Bank Wealth Management in Cincinnati, said by phone. “We do feel the second quarter finished much stronger than it began. We think the economic drumbeat is growing louder and more constructive for the markets moving forward.”

Ukraine Crisis

Ten-year U.S. debt jumped the most since March yesterday, leading a rally in haven assets after a Malaysian Airlines jet went down over eastern Ukraine, killing all 298 people on board, just a day after the U.S. and the European Union imposed further sanctions on Russia over the conflict. President Barack Obama said the violence in Ukraine is facilitated by Russia’s support for separatists and called for an immediate cease-fire.

Equities extended losses yesterday and bonds rallied after reports that Israel began a ground operation in Gaza. Prime Minister Benjamin Netanyahu said he ordered the military to prepare to widen the assault.

The Chicago Board Options Exchange Volatility Index (VIX) dropped 16 percent to 12.21, the biggest drop since October. The gauge of S&P 500 options prices known as the VIX rallied 32 percent yesterday, the most since April 2013 to close at a three-month high.

Bond Yields

Treasury 10-year yields climbed to 2.48 percent after yesterday tumbling eight basis points to 2.45 percent, the lowest rate in about seven weeks. German bonds were little changed, following a three-day run of gains.

Obama said U.S. authorities have concluded the passenger jet was shot down by a Russian-made surface-to-air missile fired from an area controlled by pro-Russian separatists. All 298 people on board, including at least one American, were killed. Russia’s President Vladimir Putin said Ukraine’s government bore responsibility for the crash because it wouldn’t have occurred without the current strife in the east of the country.

The MSCI Emerging Markets Index added 0.1 percent, capping a weekly advance. Russia’s Micex Index slid 1.3 percent, extending its weekly drop to 5.2 percent, the biggest decline since April.

Malaysian Airline System Bhd (MAS), which lost another plane in March, dropped to 11 percent, pushing the FTSE Bursa Malaysia KLCI (FBMKLCI) to its lowest level in a month. The airline has slumped 35 percent this year.

European Equities

The Stoxx 600 fell 0.9 percent yesterday for its biggest slide in a week. All but two of the index’s 19 main groups rose in the past five days, with raw-materials producers climbing the most, as the index advanced 0.8 percent.

Shares in European airlines dropped today. Air France-KLM dropped 2.1 percent, while low-cost carrier Ryanair Holdings Plc retreated 1.9 percent. Volvo AB slid 5.4 percent, leading losses by industrial goods and services companies. The world’s second-biggest truckmaker released earnings that missed analysts’ estimates.

Espirito Santo International SA missed some payments on commercial paper earlier this month and Rioforte Investments SA, another holding company that’s part of the same group, on July 15 failed to repay 847 million euros ($1.1 billion) of commercial paper to Portugal Telecom SGPS SA.

Quite Insulated

Indonesia’s rupiah, South Africa’s rand and Turkey’s lira led gains among higher-yielding currencies as the yen weakened.

Japan’s currency fell against the euro for the first time in four days, weakening 0.2 percent to 137.13. It appreciated to 136.71 per euro earlier today, the strongest level since Feb. 5.

“The market is quite insulated to geopolitical risks,” said Lyn Graham-Taylor, a fixed-income strategist at Rabobank International in London. “The amount of central-bank liquidity has desensitized the market to these events. It looks, as things currently stand, as though we are not going to get a huge bid for havens.”

Gold, which climbed 1.3 percent yesterday for the biggest advance in four weeks, declined to at $1,309.40 an ounce in New York.

Industrial metals fell. Copper retreated 1 percent to the lowest in more than two weeks in New York. Nickel fell the most in eight weeks.

West Texas Intermediate crude slipped to $103.06 a barrel after surging 2 percent yesterday, the most in a month.

To contact the reporters on this story: Jeremy Herron in New York at jherron8@bloomberg.net; Jacob Barach in New York at jbarach1@bloomberg.net

To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net Jeremy Herron, Jeff Sutherland


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