Stocks Advance on Earnings, Fed as Treasuries Trim Drop

Photographer: Scott Eells/Bloomberg

Traders work at the New York Stock Exchange. Close

Traders work at the New York Stock Exchange.

Close
Open
Photographer: Scott Eells/Bloomberg

Traders work at the New York Stock Exchange.

Stocks (MXWD) rose for a second day as earnings beat estimates at companies from Apple Inc. (AAPL) to Boeing Co. (BA), while Federal Reserve Chairman Ben S. Bernanke said he remains prepared to do more to stimulate growth if needed. Treasuries pared earlier losses and the dollar weakened.

The Standard & Poor’s 500 Index jumped 1.4 percent to close at 1,390.69 at 4 p.m. in New York. The Nasdaq-100 Index (NDX) rallied 2.7 percent, the most in 2012, with Apple surging 8.9 percent for its best gain in more than three years. Ten-year Treasury note yields added one basis point to 1.99 percent after gaining six points earlier. The dollar fell versus 13 of 16 major peers. Cattle rebounded after tumbling yesterday following the first U.S. case of mad-cow disease in six years.

Apple late yesterday posted earnings that almost doubled, reflecting growing demand for the iPhone in China and helping the most-valuable company rebound following a 12 percent slide from its record on April 9. The Fed said policy makers expect the economy to accelerate gradually, increasing forecasts for 2012 growth and reducing projections for the jobless rate. Bernanke said the central bank remains prepared to take additional action if needed to boost the economy.

“The Fed is providing an insurance policy to the economy,” Ann Miletti, senior portfolio manager for Wells Fargo Advantage Funds in Menomonee Falls, Wisconsin, said in a telephone interview. Her firm manages $213 billion. “There’s a sense that things are improving, yet there’s some instability. The Fed is saying that it will be there to help keep things going. Earnings have been strong. The market likes it.”

Fed Projections

Fed policy makers repeated the view that borrowing costs are likely to remain “exceptionally low” at least through 2014. Fed officials forecast the unemployment rate would average 7.8 percent to 8 percent in the final three months of this year versus a forecast of 8.2 percent to 8.5 percent in January, according to central tendency estimates. The economy is forecast to expand at a 2.4 percent to 2.9 percent rate this year, compared with a previous forecast for 2.2 percent to 2.7 percent.

“We remain prepared to do more as needed to make sure that this recovery continues and that inflation stays close to target,” Bernanke said at a press conference today following a meeting of the Federal Open Market Committee. Officials raised forecasts for the inflation rate this year, as measured by the personal consumption expenditures index (MXEF), to 1.9 percent to 2 percent, from 1.4 percent to 1.8 percent. The forecasts reflect the so-called central tendency, which excludes the three highest and three lowest projections of 17 policy makers.

Earnings Season

Quarterly earnings-per-share have risen 11 percent for the 174 companies in the S&P 500 that reported since April 10, with per-share results beating analysts’ forecasts by 9.7 percent, according to data compiled by Bloomberg. Before the start of the earnings season, analysts had predicted earnings growth of 0.8 percent.

Boeing Co. rallied 5.3 percent to lead the Dow Jones Industrial Average up 89.16 points to 13,090.72. Earnings beat estimates as the world’s largest aerospace company delivered more commercial jets while pushing production to record levels. Caterpillar Inc. (CAT) had the biggest drop in the Dow, tumbling 4.6 percent, as a gain in quarterly revenue trailed analysts’ estimates after sales of construction equipment fell in China and Brazil.

Corning Inc. (GLW), the largest maker of glass for flat-panel television sets, and Harley-Davidson Inc., the biggest U.S. motorcycle maker, also jumped at least 6.2 percent after releasing results that beat estimates.

“The earnings season is shaping up to be quite a bit better than expected,” said Mike Ryan, the New York-based chief investment strategist at UBS Wealth Management Americas, which oversees $844 billion. “Remember that the bar was set incredibly low. Overall however, it is supportive for markets. What this tells us is that we are in a more sustainable and durable expansion.”

Durable Goods

Equities advanced even as Commerce Department data showed bookings for durable goods dropped 4.2 percent, the biggest decrease since January 2009. Economists forecast a 1.7 percent decline, according to the median estimate in a Bloomberg News survey.

Shipments of non-defense capital goods excluding aircraft, used in calculating gross domestic product, increased 2.6 percent. The bigger-than-forecast gain in shipments in that category may prompt some economists to boost estimates for growth in the first quarter, while the drop in orders means projections for GDP this quarter may be cut.

The Stoxx Europe 600 Index (SXXP) rose 1 percent, extending yesterday’s 1 percent gain. Electrolux AB climbed 6.5 percent as the world’s second-biggest appliance maker reported first- quarter earnings that beat analysts’ estimates after raising prices in North America. Swedbank AB (SWEDA) rallied 3.5 percent and Temenos Group AG, a Swiss maker of banking software, jumped 19 percent after the companies also reported results.

U.K. Contracts

Benchmark indexes in Germany, Italy and France rose at least 1.7 percent. The FTSE-100 Index lagged, rising 0.2 percent, after U.K. gross domestic product contracted 0.2 percent from the fourth quarter of 2011, when it shrank 0.3 percent, the Office for National Statistics said. The median economist estimate in a survey was for an increase of 0.1 percent. A technical recession is defined as two straight quarters of contraction.

Cattle futures rebounded 0.6 percent to $1.12275 a pound after falling by the 3-cent exchange limit yesterday. Japan, the European Union and Taiwan said they’ll continue to import U.S. beef after a case of mad cow disease was reported in California, the first in six years. The disease, known as bovine spongiform encephalopathy, was found in a dairy cow in central California, John Clifford, the U.S. Department of Agriculture’s chief veterinarian, said yesterday. Meat from the animal didn’t enter the food chain, he said.

Oil Supplies

Oil rose 0.6 percent to $104.12 a barrel as the Fed’s statement overshadowed a U.S. Energy Department report showing supplies increased 3.98 million barrels to 373 million, the report showed. They were forecast to grow 2.8 million barrels, according to the median of 11 analyst estimates in a Bloomberg survey. Oil, which rallied as much as 0.9 percent earlier today, also retreated from its high of the session after Iran’s envoy in Moscow said his country is considering a Russian proposal to halt the expansion of its atomic program to avert new sanctions.

Thirty-year Treasury bonds also declined, sending yields up two basis points to 3.15 percent. Two-year yields were little changed at 0.27 percent.

Treasury Auction

The U.S. sold $35 billion in five-year notes at higher- than-average demand. The notes drew a yield of 0.887 percent, compared with a forecast of 0.905 percent in a Bloomberg News survey of 11 of the Fed’s primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 3.09, compared with an average of 2.88 for the previous 10 sales.

Among European bond markets, Germany’s 10-year rate increased four basis points to 1.74 percent and U.K. gilt yields rose 4.5 points to 2.14 percent. Rates on Spanish, Italian and Portuguese debt decreased.

The MSCI Emerging Markets Index added 0.1 percent as the Shanghai Composite gauge jumped 0.8 percent and Taiwan TWSE (TWSE) added 0.9 percent. Among eastern European markets, Hungary’s BUX index rallied 4.2 percent to lead gains and the forint rose against all 16 major peers after the nation won the go-ahead to pursue a financial aid package.

To contact the reporter on this story: Michael Shanahan in London at mshanahan3@bloomberg.net

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

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.