U.S. Stocks Climb for Third Week Amid Earnings, Stimulus

U.S. stocks climbed for a third week, pushing benchmark indexes to record levels, as companies from Walt Disney Co. to DirecTV beat earnings estimates and central banks worldwide stepped up monetary stimulus to boost growth.

Disney and DirecTV rallied at least 3.7 percent, pacing gains among consumer stocks. Whole Foods Market Inc. and Electronic Arts (EA) Inc. jumped more than 10 percent on better-than-expected profit forecasts. Bank of America Corp. advanced 6.4 percent after settling a five-year legal battle with MBIA Inc. (MBI) over soured mortgage debt. McDonald’s Corp. slipped 2.6 percent as sales dropped in April amid slowing demand in Asia.

The Standard & Poor’s 500 Index (SPX) rose 1.2 percent to 1,633.70 over the five days, extending its 2013 gain to 15 percent. The Dow Jones Industrial Average advanced 144.53 points, or 1 percent, to 15,118.49. Both indexes reached record highs on the final day of the week, after the Dow closed above 15,000 for the first time on May 7.

“Yes, we are at record highs, but if you take into consideration where earnings are, we are pretty fairly valued,” Greg Peterson, director of investment research at Ballentine Partners LLC in Waltham, Massachusetts, which manages about $4 billion in assets, said by phone. “Interest rates are incredibly low around the world. If anything that would give us a pause, how will that unwind?”

Global equities advanced for the week as central banks from Australia and South Korea lowered their benchmark interest rates, joining a wave of monetary easing spanning from the U.S. to Europe. The S&P 500 posted its only loss of the week on May 9 after Federal Reserve Bank of Philadelphia President Charles Plosser said he favors scaling back the central bank’s pace of stimulus.

Stimulus Policy

The Fed is currently buying $85 billion of debt each month and central bank officials have been debating whether to expand or curb the program. Fed Chairman Ben S. Bernanke has pledged to hold the target interest rate near zero as long as unemployment remains above 6.5 percent and the outlook for inflation doesn’t exceed 2.5 percent.

Three rounds of monetary stimulus from the Fed and better-than-expected corporate earnings have propelled the bull market in U.S. equities to a fifth year and driven the S&P 500 up 141 percent from a 12-year low in 2009.

Equities also gained during the week as earnings topped forecasts. About 72 percent of the 452 S&P 500 companies that have released results since the start of the earnings season have exceeded profit projections, data compiled by Bloomberg show. Analysts forecast earnings will grow 6.8 percent this year to a record $108.80 a share.

Expensive Levels

The S&P 500 is valued at 16 times reported profits, approaching the most expensive levels in almost three years, according to data compiled by Bloomberg. The multiple was 17.5 at the previous market peak in October 2007.

“We still see reasonable equity valuations,” Brian Peery, who helps oversee about $3.5 billion for Novato, California-based Hennessy Funds, said by phone. “There is probably a pretty good amount being left in the market. People are waiting for a potential dip to increase their equity exposure.”

Eight out of 10 S&P 500 groups gained for the week as industrial, consumer-discretionary and financial shares climbed the most, rising at least 1.9 percent. The Chicago Board Options Exchange Volatility Index, or VIX, fell 2 percent to 12.59, extending the equity volatility gauge’s loss for the year to 30 percent.

Theme Parks

Disney climbed 3.7 percent to an all-time high of $67.20. The world’s largest entertainment company said fiscal second-quarter profit rose 32 percent as guests splurged at theme parks in California and Florida.

DirecTV (DTV) surged 10 percent to a record $63.80. The largest U.S. satellite-television provider reported profit that topped estimates, bolstered by Latin American subscriber growth.

Whole Foods jumped 10 percent to $100.89. The largest natural-goods grocer in the U.S. boosted its forecast for earnings this year after sales at established locations increased and second-quarter profit climbed 20 percent. Whole Foods, which plans to triple its U.S. store count to about 1,000, has lured Americans who are becoming more concerned with eating organic and healthy foods.

‘Star Wars’

Electronic Arts rallied 25 percent, the most in the S&P 500, to $22.48. The No. 2 U.S. video-game maker forecast annual profit that exceeded analysts’ estimates as the company is cutting jobs and reducing expenses to cushion against a potentially rocky transition to new consoles. Electronic Arts also reached a multiyear agreement with Disney to create games based on “Star Wars” characters after Disney said it would stop making them itself.

Bank of America gained 6.4 percent to $13.02 while MBIA soared 57 percent to $15.42. The companies agreed to a deal in which the lender will pay MBIA the equivalent of $1.7 billion and give Bank of America a 5 percent stake in the bond insurer. S&P raised MBIA’s debt rating to investment grade for the first time in four years following the agreement.

McDonald’s (MCD) declined 2.6 percent to $100.20 for the worst retreat in the Dow. The world’s biggest restaurant chain said sales at stores open at least 13 months fell 0.6 percent in April as growth slowed in its Asia-Pacific region. Analysts estimated a 0.5 percent drop, the average of estimates from Consensus Metrix.

Restaurant chains have been facing increasing consumer scrutiny in China following an outbreak of bird flu and also after a former poultry supplier to Yum! Brands Inc. was investigated for selling chicken with excessive levels of antibiotics.

Utility shares fell the most among 10 groups in the S&P 500, erasing 2.7 percent. AES Corp. dropped 3.7 percent to $13.31 after reporting first-quarter earnings that missed analysts’ estimates. AES sees earnings little changed or declining through 2015 in Europe, the Middle East and Africa, where it has about 8,200 megawatts of generation, according to an investor presentation.

To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net

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

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