Nasdaq-100 Has Biggest Advance in 2012 as Apple Jumps
U.S. stocks advanced, giving the Nasdaq-100 Index (NDX) its biggest gain this year, as Apple Inc.’s earnings almost doubled and Federal Reserve Chairman Ben S. Bernanke said he’s prepared to do more to stimulate growth.
Apple, the most valuable company, surged 8.9 percent for the biggest gain since November 2008. Boeing Co. (BA) added 5.3 percent as earnings beat estimates after the company delivered more commercial jets while pushing production to record levels. Caterpillar Inc. (CAT), the world’s largest maker of construction equipment, slumped 4.6 percent as revenue missed projections.
The Nasdaq-100 Index jumped 2.7 percent to 2,709.62 at 4 p.m. New York time. The Standard & Poor’s 500 Index added 1.4 percent to 1,390.69. The Dow Jones Industrial Average rose 89.16 points, or 0.7 percent, to 13,090.72. Apple (AAPL) is not a member of the 30-stock gauge. About 6.8 billion shares changed hands on U.S. exchanges, almost in line with the three-month average.
“It’s encouraging,” James Swanson, who oversees about $250 billion as chief investment strategist at Boston-based MFS Investment Management, said in a telephone interview. “The earnings season shows that companies can have good profitability in a low growth environment. As long as these earnings hold up, I’d say that’s a bright sign for the market.”
The S&P 500 has risen 11 percent in 2012 on better-than- estimated economic and corporate data. U.S. companies are beating earnings estimates at the highest rate in two years as economic growth at home helps counter a drag from Europe. Profits have topped forecasts at 80 percent of S&P 500 (SPX) companies reporting since April 10.
Earnings rose 11 percent on average, exceeding the 0.6 percent increase analysts projected when reporting began, according to data compiled by Bloomberg. All 10 industry groups in the S&P 500 delivered better-than-forecast results, with financial, telephone and technology companies leading with a positive rate of more than 10 percent, the data showed.
Stocks also rallied as policy makers said they expect growth to gradually accelerate, while refraining from new actions to lower borrowing costs. Central bankers today upgraded their forecasts for economic growth and unemployment while repeating their view that borrowing costs are likely to remain “exceptionally low” at least through late 2014.
“The Fed is providing an insurance policy to the economy,” said Ann Miletti, senior portfolio manager for Wells Fargo Advantage Funds in Menomonee Falls, Wisconsin. 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.”
All 10 groups in the S&P 500 rallied today as gains were led by technology, which comprises 20 percent of the index. The group jumped 3.2 percent, the biggest advance since November. The Morgan Stanley Cyclical Index of companies most-tied to the economy increased 1.6 percent. The Russell 2000 Index of small companies rallied 1.8 percent to 812.12.
Apple surged 8.9 percent to $610. Demand from Chinese consumers helped Apple sell a higher-than-predicted 35.1 million iPhones last quarter and made the world’s most populous country responsible for 20 percent of sales. Chief Executive Officer Tim Cook said there will be “a lot more opportunity” in China as he introduces the iPad and expands operations there.
Before today, the company’s shares had tumbled $75.95 since a record close of $636.23 on April 9 amid reports that indicated a possible shortage in key components for Apple’s mobile devices and showed a quarter-over-quarter decline in iPhone sales at wireless carriers.
“This report should erase any doubt in investors’ minds that this company can’t continue to deliver,” said Jack Ablin, chief investment officer of Harris Private Bank in Chicago, which oversees about $60 billion, including Apple shares.
Boeing gained 5.3 percent to $77.08. It shipped 137 jetliners last quarter, compared with 131 deliveries by rival Airbus SAS. Boeing is boosting output by more than 60 percent in the four years through 2014 to pare a record order backlog from customers seeking more fuel-efficient jets.
Coca-Cola Co. (KO) rose 1.1 percent to $74.93 after voting to recommend a 2-for-1 stock split to keep the shares available to smaller investors. Chairman Muhtar Kent, who pushed for the company’s 11th stock split, may be philosophically at odds with his biggest investor, Warren Buffett.
Buffett, who controls a Coca-Cola stake of almost $15 billion, has resisted splitting Class A shares of his Berkshire Hathaway Inc. Splits, he said in a 1984 letter, may encourage short-term investment strategies that enrich brokers at the expense of the business.
“I don’t know what he would say about this one,” said Howard Buffett, the investor’s son and a director at Atlanta- based Coca-Cola. Howard Buffett, who spoke today on the sidelines of the soft-drink maker’s annual meeting, said he voted for the 2-for-1 split.
Exxon Mobil Corp. (XOM) rose 0.6 percent to $86.85, after swinging between gains and losses today. The energy company raised its quarterly dividend to 57 cents a share from 47 cents a share, according to an e-mailed statement.
Caterpillar slumped 4.6 percent, the most in the Dow, to $103.44. The company says sales in developing nations this year will be lower than anticipated, a reversal after 2011 growth in Latin America and the Asia-Pacific region outpaced North America, helping to drive record revenue and profit.
Sales in China
The company is the latest manufacturer to report sales in China have been curbed. United Technologies Corp. yesterday posted a drop in Chinese orders while 3M Co. (MMM) forecast below- trend growth in the country.
Goldman Sachs Group Inc. (GS) Chairman and Chief Executive Officer Lloyd C. Blankfein said he’s more optimistic about markets than some economists and investors.
“I tend to be a little more positive than what I’m hearing from other people,” Blankfein, 57, told Bloomberg Television today in an interview at the investment bank’s New York headquarters. “One of the big risks that people have to contemplate is that things go right.”
U.S. stocks look reasonably priced when the value of companies is measured against the size of the country’s economy, said David R. Kotok, Cumberland Advisors Inc.’s chairman and chief investment officer. He made a comparison between the total market capitalization of companies in the S&P 500 and nominal gross domestic product, which isn’t adjusted for inflation.
Bull Market End
Yesterday’s ratio was 83 percent, according to data compiled by Bloomberg. The gauge peaked at 101 percent in May 2007, near the end of a five-year bull market, and 131 percent in August 2000, when the Internet bubble of the 1990s had begun to burst. The earlier readings are circled in the chart.
“We are still two years away from a new high” for the S&P 500, Kotok wrote in the report. The prediction stems from the outlook for corporate profits and labor costs along with the index’s ratio to GDP, he wrote.
The S&P 500 may climb in 2014 to 1,600, which would lift the total market value of its companies to 90 percent of GDP, according to Kotok. His estimate for the index exceeds the record close of 1,565.15 on Oct. 9, 2007.
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