Stocks in U.S. Advance for Second Day as Profits Overshadow Economic Data
U.S. Stocks Advance as Profits Overshadow Economic Reports
Jin Lee/Bloomberg
Traders work on the floor of the New York Stock Exchange in New York.
Traders work on the floor of the New York Stock Exchange in New York. Photographer: Jin Lee/Bloomberg
May 26 (Bloomberg) -- Bloomberg's Deborah Kostroun reports on the performance of the U.S. equity market today. U.S. stocks gained a second day as higher-than-estimated corporate profits at companies including Tiffany & Co. overshadowed data showing the economy grew at a slower rate than forecast and jobless claims unexpectedly rose. Bloomberg's Pimm Fox also speaks. (Source: Bloomberg)
May 26 (Bloomberg) -- Bill Gross, manager of the world's biggest bond fund at Pacific Investment Management Co., talks about the U.S. bond market and investment strategy. He speaks with Tom Keene on Bloomberg Television's "Surveillance Midday." (Source: Bloomberg)
May 26 (Bloomberg) -- Sandy Villere, co-manager of Villere & Co.'s Villere Balanced Fund, talks about his criteria for selecting stocks in the current environment and some of his equity picks including 3D Systems Corp. and NIC Inc. Villere speaks with Matt Miller, Carol Massar and Adam Johnson on Bloomberg Television's "Street Smart." (Source: Bloomberg)
May 26 (Bloomberg) -- Barry Ritholtz, chief executive officer of FusionIQ, talks about the outlook for the U.S. stock market, economy and his investment strategy for shares of Dell Inc., Kraft Foods Inc. and Hershey Co. Ritholtz speaks with Carol Massar and Matt Miller on Bloomberg Television's "Street Smart." (Source: Bloomberg)
May 26 (Bloomberg) -- Mario Gabelli, chief executive officer of Gamco Investors Inc., talks about the firm's investment strategy and the outlook for the U.S. equity market. Gabelli, speaking with Betty Liu, Jon Erlichman and Dominic Chu on Bloomberg Television's "In the Loop," also discusses recent initial public offerings in the technology industry and corporate mergers and acquisitions. Nicholas Thompson, senior editor at New Yorker magazine and a Bloomberg Television contributing editor, also speaks. (Source: Bloomberg)
Stocks rose for a second day, erasing an early slide, as corporate earnings that beat forecasts overshadowed slower economic growth. Treasuries gained, sending 10- and 2-year yields to their lowest levels of the year.
The Standard & Poor’s 500 Index advanced 0.4 percent to 1,325.69 at 4 p.m. in New York. The MSCI Emerging Markets Index climbed 1.5 percent as South Korean equities jumped the most since June 2009 after consumer confidence improved. Ten-year yields slid as low as 3.06 percent and 2-year rates reached 0.48 percent, while 10-year German bund yields fell below 3 percent for the first time since January. Commodities retreated even as the dollar weakened against most major peers.
Rallies of more than 6.9 percent in Tiffany & Co. (TIF) and NetApp Inc. (NTAP), which topped analysts’ estimates, helped the equity market recover from an early slump triggered by data on gross domestic product and jobless claims. U.S. GDP expanded 1.8 percent last quarter, trailing forecasts, and jobless claims unexpectedly rose. The data added to concern the economy will struggle to grow as the Federal Reserve prepares to end its second round of quantitative easing, known as QE2.
“Corporate earnings are doing very well,” said Richard Sichel, who oversees $1.6 billion as chief investment officer at Philadelphia Trust Co. “People would argue on both sides about the economic recovery. There’s concern about things getting tougher with the end of QE2. The fact that the corporate side is doing well tells me that we’ll continue to see things doing better.”
‘Sparkling Results’
Companies that rely on discretionary consumer spending climbed 0.8 percent as a group to lead gains in eight of 10 industries in the S&P 500 today. Tiffany surged 8.6 percent, the most since August 2009, after reporting sales increased globally and recovered in earthquake-hit Japan. NetApp, a maker of data- storage products, climbed 6.9 percent to lead technology shares higher.
“Companies like Tiffany that cater to the more affluent have put up sparkling results, and we honestly think it can continue, even though there are still economic challenges out there,” Matt Arnold, a Des Peres, Missouri-based analyst at Edward Jones & Co., told Bloomberg Television. “The more affluent consumer feels better, and they’re spending accordingly”
The S&P 500 halted a three-day slump yesterday. The benchmark gauge of U.S. stocks has fallen 2.8 percent from a nearly three-year high at the end of April as gauges of energy, financial and raw-material companies tumbled at least 4.9 percent. The S&P GSCI Index of commodities is down almost 9 percent from a more than two-year high last month.
Fed, Profits
May losses in equities and commodities came as economic data began to trail estimates and investors prepared for the Fed to complete QE2, its $600 billion bond-purchase program, at the end of June. The 5.4 percent advance in the S&P 500 this year was propelled by the Fed’s stimulus measures and higher-than- estimated profits.
Citigroup Inc.’s U.S. Economic Surprise Index, which measures the rate at which data is exceeding or trailing projections, turned negative in May and has slumped to its lowest level since August. It reached a record in March. The slump came even as earnings-per-share topped analysts’ estimates at 72 percent of the 468 companies in the S&P 500 that released results since April 11, Bloomberg data show.
The median estimate of economists in a Bloomberg survey called for 2.2 percent growth in first-quarter gross domestic product. Applications for unemployment benefits were forecast to fall by 5,000 to 404,000 in the week ended May 21, according to a Bloomberg survey of economists.
Goldman’s Forecast
Goldman Sachs Group Inc. lowered its year-end forecast for the S&P 500 to 1,450 from 1,500 and reduced its 2012 earnings projection, citing weakening economic estimates. S&P 500 companies will post combined profit of $104 a share next year, compared with Goldman Sachs’s prior estimate of $106, according to David Kostin, the bank’s equity strategist. He maintained his 2011 earnings forecast for the S&P 500 of $96 a share.
“Our adjustments reflect a combination of developments including recently lowered GDP growth estimates by our economists in the U.S. and Asia and a significant increase in our Brent oil price forecast,” Kostin wrote today in a note to clients.
Treasury yields remained lower after the government’s $29 billion offering of seven-year notes drew the highest demand in at least two years. The yield on the current seven-year note slid nine basis points to 2.36 percent, the lowest level since Dec. 7.
Treasury Auction
At today’s auction, the securities drew a yield of 2.429 percent, compared with the average forecast of 2.448 percent in a Bloomberg News survey of nine primary dealers.
The S&P GSCI Index of commodities slipped 0.3 percent. Wheat and cocoa rose at least 1.6 percent for the biggest gains among 24 materials tracked by the index, while cotton and nickel lost more than 2.4 percent for the worst declines. Oil fell from a two-week high, losing 1.1 percent to $100.23 a barrel.
The Dollar Index slumped 0.5 percent to 75.573 as the U.S. currency weakened against 14 of 16 major peers, losing at least 1.2 percent versus the South Korean won and New Zealand dollar.
The Stoxx Europe 600 Index fell 0.1 percent, sinking to its lows of the day after Luxembourg’s Jean-Claude Juncker, who leads the group of euro-area finance ministers, said the International Monetary Fund may not release its portion of a 12 billion-euro ($17 billion) aid payment to Greece next month. A team of inspectors from the European Union, the IMF and the European Central Bank are set to complete a review of Greece’s progress in meeting bailout terms next week.
Bailout Payments
Their recommendation is needed before the fifth bailout payment can be distributed. The IMF is due to contribute 3.3 billion euros of the June payment.
“There are specific IMF rules and one of those rules says that IMF can only take action when the refinancing guarantee is given over 12 months,” Juncker said today at a conference in Luxembourg. “I don’t think that the troika will come to the conclusion that this is given,” he said.
South Korea led gains in emerging markets, with the Kospi Index rallying 2.8 percent, after consumer confidence rose to a three-month high this month, the Bank of Korea said.
India’s Bombay Stock Exchange Sensitive Index rose 1.1 percent after Tata Steel Ltd. (TATA) posted a better-than-expected 72 percent gain in fourth-quarter profit. Serbia’s dinar climbed 1.2 percent against the euro, the most in a month, after the arrest of war crimes suspect Ratko Mladic.
To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Rita Nazareth in New York at rnazareth@bloomberg.net
To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net
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