U.S. Stocks Gain for Week on Earnings, Stimulus Optimism

U.S. stocks advanced for the week, sending the Standard & Poor’s 500 Index to a record, amid optimism that global stimulus efforts and corporate earnings growth will continue to power the world’s largest economy.

Equities halted a four-day rally on the last session of the week amid disappointing retail sales and tumbling commodity prices. Consumer-discretionary stocks led gains as all 10 S&P 500 groups rose. L Brands Inc. and Ross Stores (ROST) Inc. climbed at least 9 percent amid higher-than-estimated sales. Newmont Mining Corp. slumped 7.6 percent as gold entered a bear market.

The S&P 500 climbed 2.3 percent this week to 1,588.85, the biggest advance since Jan. 4. The gauge reached an all-time high on April 11, and is up 11 percent for the year. The Dow Jones Industrial Average rallied 299.81 points, or 2.1 percent, to 14,865.06. The 30-stock measure also climbed to a record before slipping less than one point in the final session.

Central bank easing is the most important thing,” Jason Benowitz, who helps manage $4.5 billion at Roosevelt Investment Group Inc. in New York, said by telephone. The Federal Reserve minutes “showed members are somewhat divided about the pace of the program, but it’s very important to understand that discussion occurred before the March indicators showed that the economy was slowing. We have on top of that the Bank of Japan.”

The S&P 500 (SPX) surpassed its intraday record set in October 2007 as Japanese Prime Minister Shinzo Abe said “bold monetary easing” will reverse persistent deflation in his nation, while the European Central Bank vowed to keep rates low and continue injecting liquidity into the banking system.

Central Bank

In the U.S., several Fed officials said the central bank should taper its bond-buying program later this year if labor market conditions improve, according to minutes from the March meeting. Fed Chairman Ben S. Bernanke said on April 8 that economic conditions were far from where he would like them to be.

The S&P 500 posted its biggest drop of the year in the previous week as data on jobs, services industries and manufacturing sparked concern the economic recovery may be slowing. The index has more than doubled from its 12-year low in March 2009, helped by the Fed’s unprecedented bond purchases and three straight years of profit growth.

Among economic reports in the latest week, China imports grew while the nation’s inflation slowed last month from a 10- month high. U.S. jobless claims decreased more than estimated. Equities slumped on April 12 as retail sales dropped in March by the most in nine months, while a gauge on consumer sentiment slipped.

Earnings Season

Investors also watched earnings. Of the 30 S&P 500 companies that reported first-quarter results, 70 percent exceeded analysts’ profit estimates and 57 percent beat sales projections, according to Bloomberg data. At the same time, estimates compiled by Bloomberg show income at S&P 500 companies probably fell 1.4 percent in the first quarter, the first year- over-year drop since 2009.

“The set-up into earnings is pretty strong,” Benowitz said. “For the whole season, we think expectations are low enough that companies can beat. We’re not expecting the market to sell off on earnings.”

Alcoa Inc. (AA), the first company in the Dow to release results this season, reported earnings on April 8 that exceeded analysts’ estimates while revenue trailed projections. The shares slipped 0.2 percent to $8.22.

The Chicago Board Options Exchange Volatility Index (VIX), which measures the cost of using options as insurance against declines in the S&P 500, fell 13 percent to 12.06. The gauge, known as the VIX, is down 33 percent this year and in March reached its lowest level since February 2007.

Fed Influence

“The bulls will continue to run,” David Tawil, the co- founder of Maglan Capital LP, a distressed-debt hedge fund that manages about $50 million, said by phone. “That’s not necessarily an indication of how good the fundamentals are. It’s an indication of how strong our Federal Reserve has been in its influence.”

Consumer discretionary stocks rallied 3.4 percent for the week, as retailers’ monthly data offset Commerce Department figures showing a 0.4 percent drop in March U.S. retail sales.

L Brands (LTD) advanced 9.2 percent to $50.43. The owner of the Victoria’s Secret chain said March same-store sales gained 3 percent, beating the 0.4 percent increase projected by analysts. Ross Stores rose 9 percent to $64.67 as monthly sales at stores open at least one year exceeded estimates and the retailer of discount designer wear said first-quarter profit will top a previous forecast.

Technology Shares

Technology stocks rallied 1.9 percent as gains in First Solar Inc. (FSLR) and JDS Uniphase (JDSU) Corp. offset a decline in Hewlett- Packard Co. First Solar surged 40 percent to $37.11. The world’s largest thin-film solar manufacturer forecast 2013 sales above estimates. JDS Uniphase, the maker of fiber-optic equipment, jumped 9.4 percent to $13.98, while semiconductor maker Advanced Micro Devices Inc. rose 8.3 percent to $2.48.

Personal-computer maker Hewlett-Packard plunged 4.9 percent to $20.90. PC shipments plummeted in every region of the world in the first quarter as buyers opted for smartphones and tablet computers. Global PC unit shipments fell 14 percent, a bigger drop than the 7.7 percent decline market research firm IDC had forecast.

Financial companies advanced 2.5 percent. JPMorgan Chase & Co. added 2.3 percent to $49.01. The largest U.S. bank by assets slid 0.6 percent on the last day of the week, even after announcing first-quarter profit rose 33 percent on improving consumer credit quality. While mortgage volume jumped 37 percent, mortgage-banking net income dropped 31 percent.

Wells Fargo

Wells Fargo & Co., the largest U.S. home lender, posted a 22 percent rise in first-quarter profit that beat forecasts as the company curbed expense growth. Revenue, mortgage banking income and lending margins fell. The stock added 0.2 percent to $37.21.

J.C. Penney tumbled 5.4 percent to $14.62, for the second- biggest retreat in the S&P 500. The department-store chain fell to its lowest level since 2001 on April 9 after Chief Executive Officer Ron Johnson was ousted and his predecessor Myron E. Ullman III was reinstated.

Energy and material stocks posted the smallest gains out of 10 S&P 500 industries. Newmont Mining lost 7.6 percent to $36.37 for the biggest drop in the benchmark gauge. Gold entered what many consider a bear market after slumping more than 20 percent from an August 2011 record.

The S&P GSCI Index of 24 commodities fell 0.8 percent for the second straight week of declines. Newfield Exploration Co. slumped 2 percent to $21.70. Tesoro Corp. slid 3.3 percent to $51.46.

To contact the reporter on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net

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