Improved results from Google Inc. to Intel Corp. and a $75 billion buyout offer for Time Warner Inc. helped U.S. equities climb for the week, overcoming the biggest volatility increase since 2013 amid crises abroad.
Time Warner surged 21 percent for the week after rejecting the unsolicited offer from Rupert Murdoch’s 21st Century Fox Inc. Citigroup Inc. and JPMorgan Chase & Co. climbed more than 4.4 percent as bank earnings beat forecasts. Intel advanced 7.8 percent as its sales forecast fueled optimism in a recovery for the personal-computer market. Twitter Inc. fell 3.3 percent as a Federal Reserve report said some Internet and biotechnology shares may be overvalued.
The Standard & Poor’s 500 Index (SPX) gained 0.5 percent to 1,978.22 for the five days, including a 1 percent rally on July 18 to recover from the steepest one-day drop in three months. The Dow Jones Industrial Average (INDU) added 156.37 points, or 0.9 percent, to 17,100.18. The Chicago Board Options Exchange Volatility Index fell 0.2 percent, despite a 32 percent jump on July 17 as tensions intensified in Ukraine and the Middle East.
“Earnings continue to surprise on the upside, which does give an impetus for stocks to go higher,” Peter Jankovskis, co-chief investment officer who helps oversee $3.2 billion at OakBrook Investments LLC in Lisle, Illinois, said in a phone interview. “Certainly the geopolitical concern has been a major drag, or at least a worry. Volatility is coming back so we’re going to have a bumpy ride.”
The S&P 500 plunged 1.2 percent on July 17 and the VIX had the biggest jump in 15 months after a Malaysian Airlines passenger jet crashed in Ukraine, killing all 298 people on board. The government in Kiev blamed pro-Russian rebels for shooting down the jet, while the separatists denied the accusation. Equities tumbled further after Israel sent ground forces into the Gaza Strip.
Equities recovered on the final day of the week amid speculation the selloff was overdone.
“I really think these are low probability events of becoming sustained market events,” 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. “I think it’s much more likely that a hot inflation or something like that would impact the markets on a sustained basis.”
The S&P 500 has rallied 7 percent this year amid better-than-estimated corporate earnings and central bank stimulus as the U.S. economy shows signs of recovering from a 2.9 percent contraction in the first quarter.
Stocks gained during the week, with the Dow reaching a record on July 16, as more than 50 companies in the S&P 500 reported second-quarter results.
About 77 percent of the 82 companies in the S&P 500 that have posted results this earnings season beat analysts’ profit projections, and 70 percent exceeded sales estimates, data compiled by Bloomberg show. Profit by the gauge’s members increased 6.2 percent in the second quarter, and revenue rose 3.3 percent, according to analysts’ estimates compiled by Bloomberg.
Some 140 companies in the S&P 500 are scheduled to report earnings in the coming week, including Netflix Inc., McDonald’s Corp., Boeing Co., Apple Inc. and Microsoft Corp. (MSFT:US)
Equities are also getting a lift from a boom in takeovers, with more than $1 trillion worth of deals announced this year, exceeding the total of 2013, data compiled by Bloomberg show.
Murdoch’s Twenty-First Century Fox is willing to pay more than $85 a share for Time Warner, according to people with knowledge of the matter, a sign the company is undeterred after being rebuffed in an initial offer. Among other deals during the week, Reynolds American Inc. agreed to buy rival Lorillard Inc. for about $25 billion, a deal that would leave the 400-year-old U.S. tobacco industry with two competitors controlling 90 percent of the market.
Economic data in the week was mixed, with housing starts unexpectedly declining in June while retail sales reflected a broad-based gain last month. The number of Americans filing applications for unemployment benefits dropped, indicating further healing in the labor market. The index of U.S. leading indicators rose in June for the fifth straight month.
Fed Chair Janet Yellen told lawmakers the central bank plans to press on with record easing to combat persistent weakness in the job market. Yellen also said asset valuations in general aren’t out of line with historical norms, after a central bank report earlier in the week indicated prices for smaller social-media and biotechnology companies are substantially stretched.
With the Dow and the S&P 500 trading at record levels, financial professionals are growing more anxious. Forty-seven percent of investors, analysts and traders in a Bloomberg Global Poll said the equity market is close to unsustainable levels, while 14 percent already see a bubble. Most respondents said stock swings will increase within six months, the July 15-16 poll showed.
The Russell 2000 (RTY) Index of smaller companies slid 0.7 percent, extending losses to a second week. Small-caps and Internet shares were the biggest victims of a market retreat earlier this year as investors dumped the best performers of the bull market amid concern valuations advanced too far.
The Nasdaq Biotechnology Index, which trades at more than 500 times reported earnings of its members, declined 2.6 percent on the week.
Among Internet stocks, Twitter and Groupon Inc. lost more than 3.3 percent. Yahoo! Inc. fell 5.9 percent as the U.S. Web portal reported second-quarter earnings and sales that fell short of analysts’ estimates.
Rallies of more than 2.8 percent for Amazon.com Inc. and Google helped the Dow Jones Internet Composite Index post a gain for the week, as it climbed 0.3 percent.
Technology companies had the best performance among 10 main industries in the S&P 500, climbing 1.6 percent.
Google advanced as second-quarter revenue exceeded analysts’ projections as the company sold more advertising alongside Web-search results.
Intel (INTC:US) jumped 7.8 percent, the most since 2011 and its ninth week of gains, as the chipmaker forecast third-quarter sales that topped analysts’ projections. The PC market has shown signs of improvement this year as corporate spending picked up and U.S. shipments returned to growth.
Financial companies gained 1 percent for the week. JPMorgan, Citigroup and Goldman Sachs Group Inc. rose at least 4 percent as the banks reported better-than-forecast fixed-income trading revenue. Banks have seen profits hurt in recent quarters as the Fed slows its bond buying and fixed-income clients make fewer bets amid low volatility.
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