S&P 500 Posts Best Week Since July on Corporate Earnings

The Standard & Poor’s 500 Index (VIX) posted its best week since July, rebounding from a technology-driven selloff, as corporate earnings from major Wall Street banks to Yahoo! Inc. surpassed estimates.

Morgan Stanley and Citigroup Inc. surged more than 5.6 percent after results beat forecasts. Yahoo soared 11 percent as sales jumped at Alibaba Group Holding Ltd., the China-based e-commerce company it has a 24 percent stake in. Coca-Cola Co. rose the most in five years after sales volume in North America halted a slide and gains were strong in markets such as China. UnitedHealth Group Inc. slid 4 percent after cuts to Medicare pricing hurt results.

The S&P 500 rose four straight days, adding 2.7 percent to 1,864.85 during the holiday-shortened trading week. The Dow Jones Industrial Average (INDU) climbed 381.79 points, or 2.4 percent, to 16,408.54 for its best week this year.

“There is an intense focus on earnings and how well companies were executing in a challenging first-quarter environment,” Alan Gayle, who helps oversee about $50 billion in assets as a senior strategist at RidgeWorth Capital Management, said in a telephone interview from Atlanta. “The macro environment is expected to improve and it does look like the numbers are moving in that direction. It’s really important that companies continue to be able to execute. The market is not kind to any company that misses expectations.”

Earnings Estimates

More than 10 percent of the companies in the equities benchmark disclosed results in the week, with another 158 members scheduled to report next week. Profit for S&P 500 companies probably increased 0.7 percent in the first quarter, analysts now forecast, after anticipating a 0.9 percent decrease as of April 11.

The index rebounded from its worst week since 2012 and is up 0.9 percent for the year. It had dropped 4 percent from an April 2 record as investors sold Internet and biotechnology stocks amid concern that valuations were too high as earnings season began. The week’s rally left the index 1.4 percent below its all-time high.

The surge reduced volatility, as the Chicago Board Options Exchange Volatility Index sank 22 percent to 13.36. The measure’s biggest weekly decline since January 2013 erased a 22 percent rally in the prior week.

Investors also kept an eye on developments in eastern Ukraine, where the government unleashed an offensive to dislodge militants. Four-way talks on the crisis among U.S., European Union, Russian and Ukrainian diplomats on April 17 ended with an accord aimed at taking the first steps toward de-escalating the conflict.

Data Watch

Economic data in the week indicated gains in manufacturing are helping power the U.S. out of the winter doldrums, while homebuilding showed signs of lagging behind. Retail sales increased in March as consumers bought more cars, clothing and garden supplies.

Fed Chair Janet Yellen, speaking in New York on April 16, said the central bank has a “continuing commitment” to support the recovery. Three rounds of Fed bond-buying and record-low borrowing costs have helped push the S&P 500 higher by as much as 180 percent from its March 2009 low.

All of the 10 main industries in the S&P 500 advanced at least 1.5 percent over the past four days. Chevron Corp. rose 5.7 percent to $123.68, helping energy shares jump 4.7 percent as a group.

Financial stocks in the S&P 500 climbed 2.7 percent in the week, following a 4 percent rout in the previous period, as the biggest Wall Street banks reported earnings.

Bank Results

Morgan Stanley advanced 8 percent to $30.76 for its best week since January 2013. The only major bank to report a rise in trading income posted net income that beat estimates. Citigroup gained 5.6 percent to $48.22 after it delivered a surprise increase in earnings and revenue. Goldman Sachs Group Inc. rose 3.1 percent as an increase in investment-banking revenue boosted profit.

Coca-Cola added 5.4 percent to $40.72. The world’s largest soda maker showed signs of a rebound in the first three months of the year, easing the concerns that arose when the company unsettled investors with surprisingly sluggish global sales in the fourth quarter.

Yahoo soared 11 percent to $36.38 for its best week since October 2011. The web portal reported its first sales growth in more than a year and profit fell less than analysts estimated. Alibaba posted a 66 percent sales surge and more than doubled its net income for the last quarter of 2013.

Google Inc. Class C shares added 1 percent to $536.10. The operator of the world’s largest search engine fell 3.7 percent on the final trading day after saying sales fell short of estimates. That trimmed a gain of 4.9 percent in the first three days of the week. The company’s costs are rising as it finds it harder to keep up with a shift to advertising on mobile phones.

Technology Stocks

The Nasdaq Composite Index (CCMP) rallied 2.4 percent in the week, the most in two months. The gauge fell to within four points of its average price in the past 200 days on April 15 before rebounding. The last time the technology-heavy index dropped below that level, considered an important threshold by technical analysts, was Dec. 31, 2012.

The Philadelphia Semiconductor Index climbed 3.2 percent, the biggest gain in a month. Micron Technology Inc., the largest U.S. maker of memory chips, surged 13 percent to $23.91. SanDisk Corp. jumped 13 percent to $82.99, the most in nearly two years. The maker of flash memory for mobile devices boosted its forecast for gross margin this year.

International Business Machines Corp. dropped 2.7 percent to $190.01 after sales missed estimates amid declining demand for hardware and waning sales in developing countries. While earnings fell, IBM reiterated its projection for 2014 adjusted profit. The stock had risen in six of the previous seven weeks.

UnitedHealth slid 4 percent to $75.78 for the steepest drop in the Dow. The biggest U.S. health insurer said profit fell 7.8 percent. It has derived growth from Medicare and has the biggest program among publicly traded insurers, with 3 million enrollees. In April, the government implemented a second round of cuts to Medicare Advantage.

To contact the reporter on this story: Callie Bost in New York at cbost2@bloomberg.net

To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net Jeremy Herron, Jeff Sutherland

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