U.S. Stocks Advance Amid Improving Economic Reports, Earnings

U.S. stocks rose, sending the Standard & Poor’s 500 Index to a 32-month high, as improving corporate earnings and manufacturing data overshadowed higher- than-forecast growth in consumer prices.

Cliffs Natural Resources Inc. jumped 7.2 percent after profit beat analysts’ estimates. Nvidia Corp. added 9.8 percent as the maker of graphics chips forecast higher sales than analysts had predicted. American Express Co. slumped 2.3 percent amid investor concern about the impact of a proposed rule on interchange fees. Huntington Bancshares Inc. declined 2.5 percent after Bank of America Corp. cut its stock rating.

The S&P 500 rose 0.3 percent to 1,340.43 at 4 p.m. in New York. The Dow Jones Industrial Average climbed 29.97 points, or 0.2 percent, to 12,318.14. Both gauges are at the highest levels since June 2008. Stocks fell earlier as anti-government protests spread in the Middle East and Iran’s state-run Press TV said the nation is sending warships to use Egypt’s Suez Canal.

“There’s economic momentum,” said Bruce McCain, who oversees $25 billion as chief investment strategist at the private-banking unit of KeyCorp in Cleveland. “The consumer is back, businesses have been more optimistic, manufacturing has been expanding and earnings have been good. That’s enough to keep the stock rally going.”

Highest Since 2008

The S&P 500 has climbed more than 98 percent from a 12-year low in March 2009 as government stimulus measures, improving profits and takeovers bolstered confidence in equities. Per- share earnings have topped analysts’ estimates at about 72 percent of the 387 companies in the S&P 500 that have reported results since Jan. 10 and have grown 35 percent collectively, according to data compiled by Bloomberg.

Stock futures fell before the open of exchanges as the Labor Department said the consumer-price index rose 0.4 percent for a second month, exceeding the 0.3 percent median estimate of economists surveyed by Bloomberg News. A separate report showed that applications for jobless benefits increased by 25,000 to 410,000 in the week ended Feb. 12, exceeding the 400,000 median forecast of economists surveyed.

Stocks began rebounding after the Federal Reserve Bank of Philadelphia’s general economic index rose to 35.9, the highest level since January 2004 and exceeding the median forecast of 21 in a Bloomberg News survey of economists. Separately, the Conference Board’s index of U.S. leading indicators rose in January for the seventh straight month, signaling the expansion will extend into this year.

Bloomberg Consumer Comfort Index

Consumer confidence last week held near a two-month low, and more Americans turned pessimistic on the outlook for the economy as gasoline prices rose. The Bloomberg Consumer Comfort Index, formerly the ABC News US Weekly Consumer Comfort Index, was minus 43.4 in the period to Feb. 13 compared with minus 46 the prior week. Twenty-nine percent of those surveyed said the economy will worsen, the most since November and up from 23 percent in early January, today’s release said.

“Sentiment’s still cautious,” said William Nichols, senior managing director in equity trading at Cantor Fitzgerald LP in New York. “Because we haven’t had inflation for a long period of time, people are sort of wary that at some point interest rates are going higher. It’s just a matter of when.”

Cliffs, Nvidia

Cliffs Natural Resources rose 7.2 percent to $99.52. North America’s largest iron-ore producer reported fourth-quarter earnings of $2.25 a share excluding some items. Analysts surveyed by Bloomberg were expecting profit of $2.22 a share. The company also boosted its 2011 North American iron-ore sales forecast to about 28 million tons.

Nvidia rose 9.8 percent to $25.68. The maker of graphics chips forecast fiscal first-quarter sales will rise to at least $939.6 million. That compares with the $889.6 million projected by analysts on average, a sign that consumer demand for personal computers is improving.

Joy Global Inc. gained 1.2 percent to $98.07. The Milwaukee-based maker of mining equipment will replace Allegheny Energy Inc. in the S&P 500 index, S&P said on its website.

American Express fell the most in the Dow average, dropping 2.3 percent to $45.78. Federal Reserve Governor Sarah Bloom Raskin said the central bank won’t commit itself on a final rule for capping debit-card “swipe” fees until it has a chance to review public comments on the proposal released in December. The provision and the resulting regulations “may result in significant market changes,” she said in her prepared remarks.

Huntington, Lexmark

Huntington Bancshares declined 2.5 percent to $7.35. The Ohio bank’s stock rating was cut to “neutral” from “buy” at Bank of America.

Lexmark International Inc. slumped 1.4 percent to $38.95. The maker of laser and inkjet printers is facing increasing competition from Hewlett-Packard Co. and others, Morgan Stanley analyst Kathryn Huberty wrote in a note.

NetApp Inc. plunged 6.4 percent, the most in the S&P 500, to $54.77. The maker of data-storage products forecast fourth- quarter profit that trailed analyst estimates. Excluding some costs, earnings in the current quarter will be 49 cents to 53 cents a share, below the 54-cents average of analyst projections.

U.S. stocks haven’t surged this much amid price swings this narrow since 1971, an indication the S&P 500 may stall after almost doubling from its March 2009 lows.

Realized Volatility

The benchmark measure of U.S. shares has rallied 31 percent from July 2 through yesterday and an options-market indicator known as 30-day realized volatility fell below 10 on Feb. 15, a combination last seen 40 years ago, according to data compiled by Bloomberg. When volatility dropped to these levels since 1962 and stayed there three days, the index lost 0.1 percent on average in the ensuing week, and lagged behind its long-term return in the next month before outperforming during the entire year, Bloomberg Businessweek reports in its Feb. 21 edition.

“It is unusual to have such a slow grind higher with lower volatility,” said Walter Todd, who helps manage about $900 million at Greenwood Capital Associates in Greenwood, South Carolina. “Clearly there have been some fundamental drivers, with an improving economy and earnings. Having said all that, I do think complacency is an issue. I would not try to be short this market, but do think it makes some sense to take a little money off the table.”

To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net; Elizabeth Stanton in New York at estanton@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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