Bloomberg News

U.S. Stocks Rise After Selloff Amid Earnings, Bailout

August 04, 2014

U.S. stocks rose, with the Standard & Poor’s 500 Index rebounding from the biggest weekly loss in two years, as Portugal announced a bailout for Banco Espirito Santo SA and Berkshire Hathaway Inc. (B:US) beat earnings estimates.

Warren Buffett’s Berkshire Hathaway rose 3.1 percent as results improved at operating businesses including auto insurer Geico, railroad BNSF and the energy unit. Anadarko Petroleum Corp. and Noble Energy Inc. increased more than 4.8 percent to lead a rally among energy companies. Michael Kors Holdings Ltd. (KORS:US) fell 5.9 percent, the most in the S&P 500, after the company said profitability will decline this year.

The S&P 500 rose 0.7 percent to 1,938.99 at 4 p.m. in New York. The Dow Jones Industrial Average added 75.91 points, or 0.5 percent, to 16,569.28, after erasing its gain for the year last week. More than 5.6 billion shares changed hands on U.S. exchanges today, 1.4 percent below the three-month average.

“We’re seeing a reprieve of geopolitical concerns,” Chad Morganlander, a money manager at St. Louis-based Stifel, Nicolaus & Co., which oversees about $160 billion, said in a phone interview. “The economy overall is moving forward with better-than-expected earnings, and we see an upward bias continuing over the next couple of months.”

The S&P 500 tumbled 2.7 percent last week, the most since June 2012, as companies around the globe including Exxon Mobil Corp. posted disappointing results, Argentina defaulted and Banco Espirito Santo was ordered to raise capital.

Banco Espirito

Equities gained today as Portugal’s central bank took control of Banco Espirito Santo, easing concern that the lender’s woes may spread. Espirito Santo will get 4.9 billion euros ($6.6 billion), the central bank said. Global financial markets were roiled last month after another holding company in the group missed payments on commercial paper.

About $1.2 trillion was wiped from the value of global equities last week amid concern that the crisis at Espirito Santo and the default by Argentina would constrict credit markets as the Federal Reserve debates the timeline for interest-rate increases.

Concern has grown that the improving economy may force the Fed to raise interest rates sooner than expected. Data last week showed U.S. gross domestic product expanded at a 4 percent annual pace in the second quarter, confirming the Fed’s view that a first-quarter contraction was transitory. A separate report on Aug. 1 showed employers in the U.S. added more than 200,000 jobs for a sixth straight month in July, the longest such period since 1997.

10% Correction

The S&P 500, which is up 4.9 percent this year, has gone without a 10 percent correction since 2011. The benchmark index is down 2.5 percent from a record of 1,987.98 reached on July 24. It trades at 17.6 times the reported earnings of its companies, near the highest level since 2010.

The Chicago Board Options Exchange Volatility Index, which usually moves in the opposite direction to the S&P 500, jumped 34 percent last week, the most since January. The VIX declined 11 percent today to 15.12.

Some 72 companies including Walt Disney Co. and Time Warner Inc. report earnings this week. Of the companies that have posted results so far this season, 76 percent beat earnings estimates and 65 percent exceeded sales projections, according to data compiled by Bloomberg.

Nine of the S&P 500’s 10 main industries rose. Energy shares gained the most, jumping 1.6 percent. Consumer-discretionary shares added 1 percent as Gannett Co. advanced 4.4 percent to $34.32, the highest level since 2008. Utilities had the only decline, dropping 0.6 percent.

Berkshire Hathaway

Berkshire Hathaway Class B shares advanced (B:US) 3.1 percent to $129.72, an all-time high. A rebounding U.S. economy has boosted the value of Berkshire’s stock portfolio and helped propel growth at the dozens of companies that Buffett, 83, acquired during his four-decade tenure as chairman and chief executive officer.

VeriSign Inc. (VRSN:US)climbed (VRSN:US) 2.5 percent to $54.55. Buffett raised his stake in the company, which manages a directory of Internet addresses, to 10.4 percent from 8.2 percent.

Energy companies soared after Colorado Governor John Hickenlooper said at a news conference that he wants anti-fracking initiatives removed from a voting ballot. The energy gauge rebounded after falling 4.1 percent last week, the biggest five-day drop since June 2012.

Anadarko climbed 4.8 percent to $110.73 and Noble Energy increased 5.2 percent to $70.23 for the biggest gains in the S&P 500.

Groupon Inc. (GRPN:US)climbed (GRPN:US) 8.7 percent to $7.02 to lead a 1.6 percent gain in the Dow Jones Internet Composite Index. The stock climbed above its average price for the past 100 days for the first time since Feb. 18. The company is scheduled to release its second-quarter earnings after the market closes tomorrow.

Box Office

Walt Disney gained (DIS:US) 2.2 percent to $87.24 for the best performance in the Dow. “Guardians of the Galaxy,” the latest action film from Disney’s Marvel Studios, opened as the top weekend picture in cinemas, smashing forecasts with ticket sales of $94 million for the best August opening ever. Disney also is scheduled to report its third-quarter results tomorrow after the market close.

Michael Kors plunged 5.9 percent to $77.01 after Chief Executive Officer John Idol said profitability will decline this year because an experiment to bring in fall products earlier in the season didn’t work. The comments overshadowed profit and sales that beat analysts’ estimates last quarter after Kors took market share from rivals including Coach Inc.

To contact the reporters on this story: Joseph Ciolli in New York at jciolli@bloomberg.net; Elena Popina in New York at epopina@bloomberg.net

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


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Companies Mentioned

  • B
    (Barnes Group Inc)
    • $36.39 USD
    • 0.29
    • 0.8%
  • KORS
    (Michael Kors Holdings Ltd)
    • $74.61 USD
    • 0.32
    • 0.43%
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