The Dow Jones Industrial Average (INDU) climbed above 13,000, capping its longest weekly advance since January, amid speculation the European Central Bank will buy bonds to help lower borrowing costs and preserve the euro.
Alcoa Inc. (AA) and Caterpillar (CAT) Inc. rose more than 3.1 percent to pace gains in the biggest companies. Merck & Co. (MRK) and Amgen Inc. (AMGN) added at least 4 percent, driving health-care shares higher, as earnings beat estimates. Expedia Inc. (EXPE) surged 20 percent as the online-travel company raised its dividend. Facebook Inc. (FB) fell 12 percent to a record low after its results.
About nine stocks rose for every two falling on U.S. exchanges at 4 p.m. New York time. The Standard & Poor’s 500 Index advanced 1.9 percent to 1,385.97. The Dow average rallied 187.73 points, or 1.5 percent, to 13,075.66. Both climbed to the highest levels since May and completed three straight weeks of gains. Volume for exchange-listed stocks in the U.S. was 7.9 billion shares, or 18 percent above the three-month average.
“They’ve got to buy bonds,” Michael Mullaney, who helps manage $9.5 billion as chief investment officer at Fiduciary Trust in Boston, said in a phone interview. “There’s been a lot of rhetoric as far as opening up the checkbook for whatever needs to be done to stabilize the euroland. It’s a giant deal if they actually do what they say they are prepared to do.”
American stocks joined a global rally after two central bank officials said ECB President Mario Draghi will hold talks with Bundesbank President Jens Weidmann in an effort to overcome the biggest stumbling block to a new raft of measures including bond purchases. German Chancellor Angela Merkel and French President Francois Hollande echoed yesterday’s pledge by Draghi that they will do everything to protect the euro.
In the U.S., data showed that the economy expanded at a slower pace in the second quarter as a softening job market prompted Americans to curb spending. Consumer confidence in July dropped to the lowest this year, according to a separate report. Cooling growth makes it harder to reduce unemployment, helping explain why Federal Reserve Chairman Ben S. Bernanke has said policy makers stand ready with more stimulus if needed.
“Growth has decelerated sharply,” said Philip Orlando, the New York-based chief equity strategist at Federated Investors Inc., which oversees $355.9 billion. He spoke in a telephone interview. “We need something to reverse that downtrend and that ‘something’ is policy.”
Consumers are cutting back just as Europe’s crisis and looming U.S. tax-policy changes dent confidence, hurting sales at companies from United Parcel Service Inc. to Procter & Gamble Co. Sales at almost 60 percent of S&P 500 (SPXL1) companies which reported second-quarter results missed estimates, data compiled by Bloomberg show. Still, 72 percent beat profit forecasts.
Bets on global policy action paced a surge in companies that are most-dependent on economic growth. The Morgan Stanley Cyclical Index jumped 2.7 percent. Alcoa, the largest U.S. aluminum producer, rose 3.2 percent to $8.45. Caterpillar, the largest maker of construction equipment, climbed 3.4 percent to $86.16. JPMorgan Chase & Co. (JPM) added 3 percent to $36.89.
Merck gained 4.1 percent to $45.10, the highest price since 2008. The company, facing generic competition in August to its top-selling asthma drug Singulair, reported second-quarter profit that beat analyst estimates on higher sales of the diabetes medicines Januvia and Janumet.
Amgen advanced 5.8 percent to $83.92 to the highest since 2005. The largest biotechnology company reported profit topped analysts’ estimates on increased demand for its rheumatoid arthritis and bone drugs and it raised its 2012 forecast.
Coventry Health Care Inc. (CVH) climbed 11 percent to $34.07. The company beat analysts’ second-quarter earnings estimates because of increased membership in its U.S. government insurance programs and lower costs for its Medicaid business in Kentucky.
Gilead Sciences Inc. (GILD) added 7.4 percent to $55.50. It plans to start a combination study of two drugs in a single pill to treat hepatitis C by the end of the year, putting it on track to request U.S. regulatory approval for the medicine in 2014.
Expedia surged 20 percent to $54.90 amid a jump in sales. The company saw stronger second-quarter demand for hotel rooms, Chief Executive Officer Dara Khosrowshahi said. Expedia will lift its dividend 44 percent to 13 cents a share.
Arch Coal Inc. (ACI) led a surge in producers of the fuel as second-quarter results beat estimates. Arch climbed 29 percent, the most since 2000, to $6.80. Alpha Natural Resources Inc. (ANR) jumped 20 percent, the biggest gain in the S&P 500, to $7.02. Peabody Energy Corp. (BTU) advanced 5.6 percent to $20.80.
Goodyear Tire & Rubber Co. (GT) increased 6.9 percent to $10.57. Michelin & Cie., the world’s second-largest tiremaker, reported a 36 percent jump in first-half earnings that beat estimates.
Chubb Corp. (CB) rallied 4 percent to $72.32. The insurer of commercial property and high-end homes reported profit that beat estimates and boosted its outlook for the second half.
Facebook tumbled 12 percent to $23.71, 38 percent below its initial public offering price of $38. Executives led by Chief Executive Officer Mark Zuckerberg, addressing analysts for the first time since the company’s May 17 IPO, issued no growth forecasts and said little else to reassure investors who fret that the company is overvalued.
Starbucks Corp. (SBUX) lost 9.4 percent to $47.47. The world’s largest coffee-shop chain forecast fourth-quarter profit that trailed estimates as consumers pull back around the globe.
Newmont Mining Corp. (NEM) slid 3.4 percent to $44.53. The largest U.S. gold producer reported second-quarter profit that missed analysts’ estimates as costs rose faster and production was lower than projected.
CA Inc. slumped 7.2 percent to $24.43. The maker of software for managing information technology cut its annual revenue forecast. Chief Executive Officer Bill McCracken said on a conference call that a sluggish economy and a business reorganization led to a slow start for the year.
ATP Oil & Gas Corp. dropped 28 percent to $1.40, a record low. Bloomberg News reported bondholders are organizing for a potential restructuring, citing two people familiar with the matter. ATP Chief Financial Officer Albert Reese and Isabel Plume, a spokeswoman for the company, didn’t return calls for comment yesterday.
Amarin Corp. (AMRN) lost 12 percent to $13.51. U.S. approval for the company’s first product, a drug to combat high levels of blood fat that can lead to stroke and heart attack, included limits on its use that may have disappointed investors.
Abby Joseph Cohen, the senior U.S. investment strategist at Goldman Sachs Group Inc., said equities will generate better returns than bonds for investors in the medium-to-long term.
“If we were to look just at fair-value estimates over the next year to three, we think that returns that are roughly 8 to 10 percent on the stock market are sensible,” she said in an interview on “Bloomberg Surveillance” today with Tom Keene. “It is sensible as well for a long-term outlook, even though we assume that economic growth will not be as robust as it was in the years immediately prior to the financial crisis.”
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