U.S. Stocks Advance as Corporate Earnings Surpass Estimates

U.S. stocks rallied, sending the Standard & Poor’s 500 to the highest close in 10 weeks, after better-than-estimated earnings at companies from Humana Inc. to Allergan Inc. and manufacturing data that topped forecasts.

Alcoa Inc. rose 4.8 percent, the most in the Dow Jones Industrial Average, to help lead gains in commodity shares. Oil climbed above $81 for the first time since May, giving a boost to energy companies. Humana, the biggest provider of U.S.-backed health benefits, and Allergan, the maker of the Botox wrinkle smoother, rallied at least 3.6 percent. Intel Corp. gained 2.7 percent as a trade group said global chip sales were “robust.”

The S&P 500 gained 2.2 percent to 1,125.86 as of 4 p.m. in New York. The Dow climbed 208.44 points, or 2 percent, to 10,674.38 as all 30 of its components advanced. Nearly four stocks rose for each that fell on U.S. exchanges.

“We continue to get pretty decent earnings,” said Mark Bronzo, an Irvington, New York-based fund manager at Security Global Investors, which oversees $23 billion. “There’s a disconnect between earnings being good and the mindset the economy is slowing. Most managers going into July started to believe the economy is slowing, so earnings have surprised.”

U.S. stocks extended a global rally after the U.K.’s HSBC Holdings Plc and France’s BNP Paribas SA topped analysts’ earnings estimates and Honda Motor Co.’s improved full-year forecast helped trigger a rally in Japanese shares. The S&P 500’s rise took it above its 200-day average level of around 1,115. That indicator is considered significant by analysts who use charts and patterns to predict movements in stock prices.

China Growth

In China, a purchasing managers’ index released today by HSBC and Markit Economics slid to 49.4 from 50.4 in June. A government-backed PMI fell to 51.2 from 52.1, the Federation of Logistics and Purchasing reported yesterday. Fifty is the dividing line between expansion and contraction and the data bolstered speculation that the Chinese government will ease measures taken to cool its economy.

“The glass-half-full view, though, is that Chinese officials will back off from tightening policy and the softness is as they have planned in terms of cooling the overheated part of their economy,” said Peter Boockvar, equity strategist at Miller Tabak & Co. in New York.

July Rally

The S&P 500 rallied 6.9 percent in July, its best monthly gain in a year, as net income beat analyst estimates at companies from FedEx Corp. to Motorola Inc. and applications for unemployment benefits declined. Michael Shaoul at Marketfield Asset Management, Laszlo Birinyi of Birinyi Associates Inc. and Federated Investors Inc.’s Philip Orlando see more gains for U.S. stocks.

Earnings have topped estimates at 77 percent of the 316 companies in the S&P 500 that have reported results since July 12, while government reports on building permits and industrial production showed unanticipated growth, according to data compiled by Bloomberg.

Stocks extended gains after economic data were better than predicted. The Institute for Supply Management’s manufacturing gauge fell to 55.5 in July from 56.2 a month earlier. A reading greater than 50 points to expansion. Economists had forecast the measure would drop to 54.5, according to the median of 74 projections in a Bloomberg News survey. Construction spending in the U.S. unexpectedly increased 0.1 percent in June, boosted by a gain in government programs that made up for declines in private residential and commercial projects.

Manufacturing Expansion

“There are parts of the report that are consistent with the view that the manufacturing sector of the economy continues to expand,” said Hugh Johnson, who oversees $1.85 billion as chairman of Albany, New York-based Johnson Illington. “It’s good news for the manufacturing sector of the economy and for the manufacturing employment sector of the economy.”

Commodity shares advanced after the manufacturing and construction reports and oil rose 3 percent to $81.34 a barrel in New York. Alcoa climbed 4.8 percent to $11.71. Cliffs Natural Resources Inc. rallied 7.1 percent to $60.60. National Oilwell Varco Inc. added 5 percent to $41.13.

Anadarko Petroleum Corp. increased 8.4 percent to $53.27, helping energy shares gain 3.6 percent, the most of 10 groups in the S&P 500. The Texas oil company that owns a stake in BP Plc’s damaged Gulf of Mexico well agreed to sell Colorado pipeline assets to Western Gas Partners LP for $498 million. The deal also includes contracts held by Anadarko to process gas for producers.

Exxon Mobil Corp., the largest U.S. oil company, rose 3.8 percent to $61.94. Schlumberger Ltd., the world’s largest oilfield-services contractor, jumped 5.2 percent to $62.74.

Humana, Allergan

Humana gained 3.6 percent to $48.73 after it forecast third-quarter profit excluding some items of at least $1.65 a share. On average, the analysts surveyed by Bloomberg estimated earnings of $1.42.

Allergan Inc. rose 6 percent to $64.72. The company said U.S. regulators extended by three months a review of its top product, the wrinkle-smoother Botox, for a new use as a migraine treatment. Allergan also reported second-quarter earnings excluding certain items of 85 cents a share, beating by 4 cents the average estimate of 15 analysts surveyed by Bloomberg.

Intel climbed 2.7 percent to $21.15. The world’s biggest chipmaker gained after the Semiconductor Industry Association said global sales in the second quarter increased 7.1 percent to $74.8 billion from the first three months. Sales were “exceptionally robust” in the first half, rising more than 50 percent from a year earlier to $144.6 billion, driven by “strong demand” from end-markets, the association said.

Office Depot Jumps

Office Depot Inc. rose 10 percent, the most in the S&P 500, to $4.77. Thomas J. Colligan, a board director at the second- largest U.S. office-supply chain, bought 8,000 shares on July 30, according to a regulatory filing.

Coca-Cola Co. advanced 2.4 percent to $56.41. The world’s largest soft-drink maker was raised to “overweight” from “neutral” at JPMorgan Chase & Co.

Research In Motion Ltd., maker of the BlackBerry smartphone, lost 1 percent to $56.98 after the United Arab Emirates said yesterday it will suspend BlackBerry e-mail services from October because the company encrypts its messages. Saudi Arabia’s telecoms regulator has ordered phone companies to ban BlackBerry services, Reuters reported yesterday.

AT&T Inc. and Verizon Wireless, the biggest U.S. mobile carriers, are planning a venture to displace credit and debit cards with smartphones, posing a new threat to Visa Inc. and MasterCard Inc., three people with direct knowledge of the plan said. Visa and MasterCard were among the biggest decliners in the S&P 500, losing at least 1.5 percent each.

Arena Pharmaceuticals Inc. dropped 9.8 percent to $7.17 for the third-biggest decline in the Russell 2000 Index. The San Diego-based biotechnology company was downgraded to “neutral” from “overweight” at JPMorgan Chase.

Dynavax Technologies Corp. lost 8.1 percent to $2.03. The biotechnology company developing products for infectious disease said it had a loss of 34 cents a share in the second quarter, compared with profit of 10 cents a year earlier.

To contact the reporter on this story: Kelly Bit in New York at kbit@bloomberg.net.

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