U.S. stocks rose, giving the Standard & Poor’s 500 Index a third straight day of gains, as the start of corporate earnings season fueled increased optimism about growth in the world’s largest economy.
Alcoa Inc. (AA) increased 1.4 percent before the biggest U.S. aluminum producer reported results after the market closed. The stock added 1.3 percent in extended trading after earnings beat analysts’ estimates. Dell Inc. (DELL) gained 3.1 percent as the largest shareholder-advisory firm said investors should accept founder Michael Dell’s buyout offer. Intel Corp. (INTC) slumped 3.6 percent amid an analyst downgrade.
The S&P 500 (SPX) added 0.5 percent to 1,640.46 at 4 p.m. in New York, the highest since June 18. The Dow Jones Industrial Average rose 88.85 points, or 0.6 percent, to 15,224.69. More than 6 billion shares traded hands on U.S. exchanges today, about 8 percent below the three-month average.
“I really don’t think the earnings season is going to be so much about the second quarter, but more about the pickup in second half that the market appears to be anticipating,” Gary Flam, who helps oversee $7 billion at Bel Air Investment Advisors LLC in Los Angeles, said in a phone interview. “The market is getting comfortable that the economy is strong enough to withstand reduced Fed support. The market is inching toward normalcy. We’re not in an abnormal environment where the Fed and Fed actions are dictating market movements.”
The S&P 500 (SPX) gained 1.6 percent last week, as better-than-estimated economic data tempered concern over a possible scaling back of Fed stimulus measures. Employers added more jobs than forecast in June, and other data during the week showed jobless claims decreased and manufacturing improved. While the index has fallen 1.7 percent since its May 21 record, the gauge is up 15 percent for 2013.
Investors will gain more insight into the central bank’s plans when the Federal Open Market Committee publishes minutes from its June meeting on July 10. Chairman Ben Bernanke also speaks that day. He said on June 19 the Fed may pare its asset-purchase program this year and end it in mid-2014 if growth meets policy makers’ estimates.
The S&P 500 fell nearly 5 percent in the four days after Bernanke’s comments following the FOMC meeting. The gauge has since gained 4.3 percent and is about 0.7 percent below its June 18 close.
“All eyes this week are likely to be on the latest FOMC minutes and comments from Ben Bernanke in light of Friday’s better-than-expected payrolls numbers,” Michael Hewson, a market analyst at CMC Markets Plc in London, wrote in an e-mail. “Will he offer any clues as to the timing of possible tapering or will he simply reiterate previous comments made a few weeks ago?”
Earnings at companies listed on the S&P 500 rose 1.8 percent last quarter, down from a projection of 8.7 percent six months ago, according to more than 11,000 analyst estimates compiled by Bloomberg. Lower expectations helped about 73 percent of the companies in the benchmark measure exceed forecasts by an average of 5.1 percent for the first three months of the year, Bloomberg data show.
The start of earnings season, typically demarcated by Alcoa’s report, has been a buying opportunity since the bull market began in March 2009. The S&P 500 has risen 13 of the 17 times Alcoa has reported results since then, adding an average 1.6 percent in the two weeks following the aluminum producer’s earnings release.
Alcoa rose 1.4 percent to $7.92 before becoming the first Dow member to report results after the market closed. The stock added another 1.3 percent at 4:30 p.m. in New York after second-quarter earnings beat analysts’ estimates as U.S. carmakers used more aluminum in their latest models.
The company, which had its credit rating cut to junk by Moody’s Investors Service in May, said profit excluding one-time items was 7 cents a share, exceeding the 6-cent average of 15 estimates compiled by Bloomberg. Sales fell to $5.85 billion, exceeding the $5.79 billion average of nine estimates.
The Chicago Board Options Exchange Volatility Index (VIX), or VIX, fell 0.7 percent today to 14.78. The equity volatility gauge, which moves in the opposite direction as the S&P 500 about 80 percent of the time, reached a six-month high in June and has since dropped 28 percent.
Eight of 10 industry groups in the benchmark gauge advanced as utility companies and makers of consumer staples rose more than 1 percent. The Russell 2000 (RTY) Index, a benchmark measure for smaller companies, climbed 0.4 percent to a record.
Dell rose 3.1 percent to $13.44 after Institutional Shareholder Services Inc. said investors should accept founder Michael Dell’s $24.4 billion leveraged buyout plan for the company. ISS cited a 25.5 percent premium to Dell’s unaffected share price, the certainty of value provided by an all-cash offer and the transfer of risk given Dell’s deteriorating PC business among reasons for supporting the bid.
Priceline.com Inc. (PCLN) added 3.9 percent to $888.63. The stock has rallied nine straight days, adding 10 percent since June 24. Morgan Stanley upgraded the online travel agent to overweight, meaning investors should buy the stock, on expectation that the company will fetch a higher valuation as its profit margin stabilizes amid market-share gains.
Coal stocks rallied as Davenport & Co. said Walter Energy Inc. may idle some production, squeezing supplies. Walter Energy jumped 4.6 percent to $10.81. Consol Energy Inc. advanced 4 percent to $27.56 while Peabody Energy Corp. climbed 4.9 percent to $15.37.
Utility companies in the S&P 500 jumped 1.4 percent as a group. NRG Energy Inc. gained 4.2 percent to $27.23. The largest independent U.S. electricity generator said its NRG Yield Inc. unit is selling stock in an initial public offering.
Intel (INTC) slumped 3.6 percent, the most in the Dow and S&P 500, to $23.19. Evercore Partners Inc. cut its 2013 and 2014 earnings estimates for the world’s largest computer-chip maker and lowered the rating to underweight from equal weight.
The earnings cut dragged technology shares lower, with the group retreating 0.2 percent. Hewlett-Packard Co., the only other stock in the Dow to retreat today, plunged 1.6 percent.
Phone stocks slipped 0.4 percent as a group to pace losses in the S&P 500. Sprint Nextel Corp. fell 1.3 percent to $7.07.
Regeneron Pharmaceuticals Inc., maker of the Eylea eye-disease medicine, dropped 1.9 percent to $229.02. Ohr Pharmaceutical Inc. has enrolled half of the 120 patients needed for a mid-stage study for an age-related eye disorder, as it seeks to compete with Regeneron.
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