U.S. Stocks Rise on Earnings, Deals as Dollar Advances

U.S. stocks rose, with benchmark gauges near records amid deals activity and earnings reports, as investors weighed comments from the Federal Reserve. European bonds advanced, while the dollar strengthened.

The Standard & Poor’s 500 Index (SPX) gained 0.4 percent at 4 p.m. in New York, while the Dow Jones Industrial Average added 0.5 percent to close at a record. Intel Corp. surged to a 12-year high after reporting earnings, while Time Warner Inc. rallied after 21st Century Fox Inc. made a takeover bid. The dollar reached the strongest in a month versus the euro, while U.S. crude rose from a two-month low.

Federal Reserve Chair Janet Yellen said asset valuations in general aren’t out of line with historical norms after a central bank report yesterday indicated prices for smaller social-media and biotechnology companies are substantially stretched. The Fed said economic growth was modest to moderate in June based on its Beige Book survey. U.S. industrial production rose last month to cap the strongest quarter in almost four years. The Obama administration imposed sanctions on large Russian banks and energy companies and individuals.

“I think Yellen might have derailed a few things yesterday, but today it’s back to earnings again and rightfully so,” Richard Sichel, chief investment officer at Philadelphia Trust Co., which oversees $2 billion, said in a phone interview. “Earnings season is a big deal and you have a couple of big names that have looked good with many, many to come.”

Earnings Season

Intel jumped 9.3 percent to the highest since February 2002 after the world’s biggest maker of semiconductors forecast third-quarter sales that topped some analysts’ predictions.

Bank of America Corp. slid 2 percent after the second-biggest U.S. bank said profit declined 43 percent as it spent $4 billion to cover litigation costs. Yahoo! Inc. fell 5.1 percent as the Web portal reported earnings and sales that fell short of analysts’ estimates.

EBay Inc. is among the 14 S&P 500 companies reporting results today. Shares in the biggest online marketplace climbed 1.3 percent in late trading after adjusted earnings per share topped estimates.

Profit at members of the index probably rose 4.5 percent in the three months through June, while sales gained 3.1 percent, analyst estimates compiled by Bloomberg show.

International Business Machines Corp. gained 2 percent after announcing a partnership with Apple Inc. The companies said they will work together on business software for iPhone and iPad users. Apple slipped 0.6 percent.

Big News

Rupert Murdoch’s 21st Century Fox is willing to pay more than $85 a share for Time Warner, which rebuffed an initial offer. Time Warner shares rallied 17 percent to $83, while Fox shares sank 6.2 percent for the biggest slide in the S&P 500.

“A bid for something like Time Warner, that’s big news,” said Timothy Ghriskey, chief investment officer at New York-based Solaris Asset Management LLC, in a phone interview. “A takeover environment creates a lift to the markets. Everyone is looking for the next big name.”

The S&P 500 fell 0.2 percent yesterday and the Russell 2000 Index lost 1 percent after the Fed’s valuation comments. Small-caps and Internet shares were the biggest victims of a market retreat earlier this year as investors dumped the best performers of the bull market amid concern valuations advanced too far.

The Russell 2000 Index dropped 0.2 percent today and has erased its gains for the year this week.

Answering questions from the House Financial Services Committee today, Yellen said that while some asset values “may be on the high side and there may be some pockets where we see valuations becoming stretched,” in general “price equity ratios and other measures are not outside of historical norms.”

Beige Book

The Fed said all 12 of its districts reported stronger consumer spending and expanded manufacturing, and a third saw “robust to very strong” auto sales, according to the Beige Book.

An unexpectedly fast decline in the jobless rate is putting pressure on the central bank to consider moving up the timing for the first increase in the main interest rate since 2006.

“We are at risk of doing what the Fed has too often done: overstaying our welcome by staying too loose too long,” the Dallas Fed’s Richard Fisher said in remarks prepared for a speech in Los Angeles. The Fed may need to start raising its benchmark interest rate “early next year, or potentially sooner depending on the pace of economic improvement,” he said.

Rate Forecast

Traders see a 60 percent chance the Fed will raise its key rate by July 2015, compared with about 53 percent at the end of June, federal fund futures contracts show.

The yield on the 10-year Treasury note fell two basis points to 2.53 percent. Treasury market volatility was almost the lowest in two years before Yellen resumes testimony to lawmakers today.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, reached 1,010.67 today, the highest since June 20. The greenback gained 0.4 percent to $1.35245 per euro after earlier strengthening to $1.3522, the most since June 16.

The sanctions against Russian companies, announced after U.S. markets closed today, are the latest escalation in the confrontation over Ukraine and one aimed at squeezing Russia’s $2 trillion economy.

Among the companies hit were oil company OAO Rosneft and OAO Gazprombank, according to an announcement by the Treasury Department. Russian stocks fell for a third day, with the Micex Index losing 0.1 percent.

Russia Sanctions

The penalties go further than earlier rounds of sanctions that targeted individuals who are part of Russian President Vladimir Putin’s inner circle, while stopping short of hitting entire sectors of the Russian economy.

The MSCI Emerging Markets Index climbed less than 0.1 percent to extend the highest close since February 2013.

The Shanghai Composite Index (SHCOMP) fell 0.2 percent as concern that new share sales will divert funds from existing equities offset data showing economic growth topped estimates and June home sales surged. The Hang Seng China Enterprises Index (HSCEI) of mainland companies listed in Hong Kong ended a four-day gain.

“The Chinese data confirms the long emerging-markets view that I hold,” Manish Singh, who helps oversee $2 billion as head of investments at Crossbridge Capital in London, said. “As the global recovery improves, emerging markets should benefit too.”

West Texas Intermediate crude advanced 1.3 percent to settle at $101.20 a barrel for the biggest gain since June 12. A government report showed that U.S. crude inventories dropped for a third week.

WTI settled at $99.96 yesterday, its first close below $100 since May, as concerns over supply disruptions in Libya and Iraq continued to ease.

To contact the reporters on this story: Jacob Barach in New York at jbarach1@bloomberg.net; Jeremy Herron in New York at jherron8@bloomberg.net

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

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