U.S. Stocks Rise as Investors Weigh Earnings, Home Data

July 22 (Bloomberg) -- Bloomberg’s Adam Johnson and Dominic Chu report on today’s ten most important stocks including McDonald's, Texas Instruments and Yahoo. (Source: Bloomberg)

U.S. stocks rose, as monthly flows into equity exchange-traded funds reached a five-year high, after housing data and earnings from companies including McDonald’s Corp. fueled speculation stimulus would continue.

Financial companies climbed the most among 10 industries in the Standard & Poor’s 500 Index as Bank of America Corp. added 1.2 percent. Newmont Mining Corp. jumped 5.8 percent, leading gains among gold producers, as the metal’s price surged the most in a year. McDonald’s slid 2.7 percent after revenue missed forecasts. Yahoo (YHOO) Inc. dropped 4.3 percent after saying activist investor Daniel Loeb is leaving the board. Homebuilders fell, with D.R. Horton Inc. losing 2.2 percent, as sales of previously owned houses unexpectedly dropped in June.

The S&P (SPX) 500 rose 0.2 percent to 1,695.53 at 4 p.m. in New York, extending a record. The Dow Jones Industrial Average added 1.81 points, or less than 0.1 percent, to 15,545.55. About 5.2 billion shares traded hands on U.S. exchanges today, 19 percent below the three-month average.

“The earnings reflect a growing economy, but not a robust economy, not a runaway economy,” John Carey, a fund manager at Boston-based Pioneer Investment Management Inc., said by telephone. His firm oversees $211.5 billion. “There was concern that the economy may be doing a little better than the Fed was estimating and that might lead to an earlier tapering. Now with fairly modest economic growth and slow earnings growth, I don’t think people are going to be as worried about the tapering.”

Bull Market

The S&P 500 rallied 0.7 percent last week to a record, after better-than-forecast earnings and Federal Reserve Chairman Ben S. Bernanke said the central bank remains flexible about the duration of its asset-purchase program. Fed stimulus has helped fuel a surge in stocks worldwide, with the S&P 500 jumping 151 percent from its March 2009 low.

Investors have increasingly turned to stocks this month, as U.S. equity exchange-traded funds are getting money at the fastest rate since September 2008. After adding $10.2 billion to ETFs last week, the July total stands at $29.7 billion, according to data compiled by Bloomberg. Mutual funds that invest in U.S. equities had $4.55 billion of inflows during the week through July 10, ending seven consecutive weeks of withdrawals.

Individuals have 69 percent of their assets in mutual funds, almost a percentage point more than the average since 1992 and four points more than in 2012, Goldman Sachs Group Inc. said in a note to clients. Investors are demonstrating the “strongest risk appetite in five years,” according to the note dated July 19.

‘Active’ Reengagement

“What we’ve seen since June is market participants reengage pretty actively,” Arvin Soh, a New York-based portfolio manager with GAM, said by phone. His firm has more than $48 billion under management. “We’re off to a good start in the earnings season. Confidence is pretty high. Certainly, if you were say to say ‘do we know of many people that are bearish right now?’ Absolutely not.”

Data today showed purchases of previously owned houses fell 1.2 percent to a 5.08 million annualized rate last month, according to the National Association of Realtors. The median forecast of 79 economists surveyed by Bloomberg called for a 5.26 million pace. The pace of the demand was the second strongest since November 2009 following May’s downwardly revised 5.14 million rate.

In Asia, Japanese election results from the weekend strengthen Prime Minister Shinzo Abe’s ability to carry out his policy of monetary easing, fiscal stimulus and deregulation.

Broad Rally

The broadest rally in U.S. stocks since at least 1990 has lifted shares of everything from the smallest companies to the biggest banks, signaling the bull market for America’s largest corporations will last at least until the end of the year, if history is a guide.

The S&P 500’s advance to a record last week coincided with highs in the Russell 2000 Index (RTY) of smaller companies, the Dow Jones Transportation Index, the S&P 500 Financials Index and a gauge of economically sensitive equities overseen by Morgan Stanley. Since 1990, the S&P 500 has gained for six months on average after those measures peaked, according to data compiled by Bloomberg.

While bears say the breadth shows indiscriminate buying just as profit growth slows and the Fed prepares to curtail stimulus, gains across stock measures have proved an accurate forecaster of performance. In four market tops during the last 23 years, small-cap stocks and the cyclical gauge never peaked after the S&P 500.

52-Week Highs

About 84 percent of stocks in the index traded above their average prices from the past 50 days as of the end of last week, according to data compiled by Bloomberg. While that’s below a 19-month high of 93 percent reached in May, it’s up from its 2013 bottom of 12.8 percent in June. There were 84 stocks in the index that closed at a 52-week high yesterday and only one at a 52-week low.

More than 150 S&P 500 companies, including Apple Inc., Amazon.com Inc. and Facebook Inc., report their earnings this week. Of the 108 companies on the gauge to have already reported quarterly results, 71 percent have exceeded analysts’ profit estimates and 52 percent have beaten sales projections, data compiled by Bloomberg show.

The Chicago Board Options Exchange Volatility Index, or VIX, lost 2 percent today to 12.29 for a fourth straight decline. The equity volatility gauge, which moves in the opposite direction as the S&P 500 about 80 percent of the time, hit a six-month high in June and has since fallen 40 percent.

Industry Returns

Five of 10 S&P 500 main industries gained as financial and health-care shares rose more than 0.4 percent.

The KBW Bank Index (BKX) advanced 1 percent to the highest level since October 2008. Bank of America increased 1.2 percent to $14.92. Financial companies have exceeded expectations so far in the earnings season more than any of other S&P 500 industry, with reported total profits 8.7 percent higher than forecast, data compiled by Bloomberg show.

Newmont, the biggest U.S. gold producer, climbed 5.8 percent to $30.35. Barrick Gold Corp., the world’s largest gold miner, jumped 6.2 percent to $17.56. Bullion futures rose above $1,300 an ounce in New York for the biggest gain in more than a year as speculation the Fed will maintain stimulus spurred demand for the metal.

Hasbro (HAS) Inc. added 3.3 percent to $46.87 as higher sales in its games unit offset quarterly results that trailed estimates. The world’s second-largest toymaker said sales of games such as “Monopoly” and “Magic: The Gathering” rose 19 percent to $255.4 million in the second quarter.

Federal-Mogul Corp. surged 31 percent, the most since October 2008, to $13.95. The auto-parts maker controlled by investor Carl Icahn returned to a profit in the second quarter.

McDonald’s Sales

McDonald’s fell 2.7 percent, the most in the Dow, to $97.58. The world’s largest restaurant chain posted second-quarter revenue that trailed analysts’ estimates and said economic weakness would hurt sales for the remainder of 2013.

Yahoo tumbled 4.3 percent to $27.86. The company will buy back $1.16 billion of shares held by Third Point LLC, leaving the fund with about 20 million shares, or less than a 2 percent stake. Loeb, who runs the fund, is leaving the board along with two other directors, Harry Wilson and Michael Wolf, added last year to end a proxy fight.

The S&P Supercomposite Homebuilding Index slumped 1.8 percent as all 11 members retreated. D.R. Horton declined 2.2 percent to $21.58. Lennar Corp. fell 2.1 percent to $34.80. PulteGroup Inc. slid 1.1 percent to $19.14.

Gannett Co. dropped 1.9 percent to $25.87. The publisher of USA Today said second-quarter sales slipped less than 1 percent after print ads continued to slump even as licensing for its TV stations gained 62 percent from a year earlier.

DreamWorks Animation SKG Inc. fell 4.5 percent to $23.77. The company may incur a writedown of as much as $50 million on the new movie “Turbo” because of a disappointing opening at the box office, James Marsh, a Piper Jaffray analyst in New York, wrote in a note to clients.

To contact the reporters on this story: Lu Wang in New York at lwang8@bloomberg.net; Katie Brennan in New York at kbrennan23@bloomberg.net

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

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