U.S. stocks rose, rebounding from the biggest drop since February, as higher-than-estimated earnings and the Federal Reserve’s pledge to keep interest rates at a record low overshadowed a downgrade of Spain’s debt rating.
Dow Chemical Co., the largest U.S. chemical maker, climbed 5.9 percent and insulation producer Owens Corning Inc. rallied 11 percent as profits topped average analyst forecasts. Goldman Sachs Group Inc. gained 2.6 percent after defending its business practices to a Senate panel. Banks led the advance after the Fed said it will keep its benchmark interest rate near zero for an extended period even as the labor market begins to improve.
The S&P 500 increased 0.7 percent to 1,191.36 at 4 p.m. in New York. It fell as much as 0.2 percent today after S&P cut Spain to AA from AA+. Stocks plunged around the world yesterday, sending the S&P 500 down 2.3 percent, after S&P reduced ratings for Greece and Portugal. The Dow Jones Industrial Average climbed 53.28 points, or 0.5 percent, to 11,045.27 today.
“Earnings season is going exceptionally well,” said David Katz, chief investment officer at Matrix Asset Advisors Inc. in New York, which manages $1.2 billion. “A better economy and better earnings should continue to drive the market higher as the year progresses.” Europe “is going to muddle through” its debt crisis, he said.
Profit for companies in the S&P 500 surged 176 percent during the final three months of 2009, the most in Bloomberg data going back to 1998, and analysts estimate a 44 percent increase for the first quarter of 2010. Earnings estimates for companies in the index rose 9.1 percent on average in April, twice the gain in prices and the largest monthly increase since at least 2006.
Income for the first three months of this year is beating estimates at nearly the fastest rate ever for the third time in a year, with 79.4 percent of the companies that have reported topping projections. That compares with 79.5 percent in the third quarter and 72.3 percent in the period before that.
The S&P 500 has rallied 76 percent from a 12-year low in March 2009 as earnings returned to growth following a record nine-quarter slump and the Fed kept its benchmark interest rate at a record low near zero to safeguard the recovery from the recession.
“Economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period,” the Federal Open Market Committee said in a statement today in Washington.
European Shares Slide
The Stoxx Europe 600 Index slumped 1.3 percent today after S&P downgraded Spain, the euro region’s third-largest economy. It slid 3.1 percent yesterday after Greece’s rating was reduced to junk and Portugal’s cut two steps.
S&P said in a statement today that the outlook on Spain is negative, reflecting the chance of a possible further downgrade if the “budgetary position underperforms to a greater extent than we currently anticipate.” Spain was last cut by S&P in January 2009.
“While Greece doesn’t have huge implications in the global economy, and Portugal doesn’t either, Spain does,” said John Massey, a money manager at SunAmerica Asset Management Corp. in Jersey City, New Jersey. “Europe represents a fair amount of sales for most global companies.”
Dow Chemical rose 5.9 percent to $31.83, its highest price since September 2008. Buoyed by higher sales of commodity plastics, net income rose to $551 million, or 41 cents a share, from $24 million, or 3 cents, a year earlier. Profit excluding some items was 43 cents, topping the 30-cent average estimate of 11 analysts in a Bloomberg survey. Sales rose 48 percent to $13.4 billion.
Owens Corning, Goldman Sachs
Owens Corning jumped 11 percent to $33.21, an almost three-year high. First-quarter profit excluding some items was 42 cents a share, more than triple the average analyst estimate in a Bloomberg survey. The company’s full-year forecast, $2 a share, was 34 percent higher.
Goldman Sachs, Wall Street’s most profitable firm, gained 2.6 percent to $157.01 after the Senate’s Permanent Subcommittee on Investigations meeting yesterday. The bank’s executives were grilled by U.S. senators at the hearing in Washington, which is probing the bank’s sales of mortgage-related securities that subsequently collapsed. The firm was sued by the Securities and Exchange Commission for fraud on April 16 for improper disclosure of information about collateralized debt obligations.
Richard Bove, an analyst at Rochdale Securities LLC, said customers may not leave the firm after the Senate hearing yesterday.
‘No SEC Case’
Senators “overplayed their hands,” and it was evident that “there’s no SEC case at all,” Bove said in an interview with financial news network CNBC.
Invesco Ltd. climbed 4.3 percent to $21.61. Excluding merger-related expenses, Invesco earned 27 cents a share, more than the 26-cent average estimate of 15 analysts surveyed by Bloomberg.
Molex Inc. rose 4.6 percent to $23.43. The maker of electronic and fiber optic connectors reported fiscal third-quarter profit that topped estimates and forecast fourth-quarter revenue that exceeded the average forecast.
Duke Energy Corp. rose 3.9 percent to $16.64. The owner of gas and electric utilities in the U.S. Southeast and Midwest had been interested in buying E.ON AG’s U.S. unit. E.ON is nearing a deal to sell the unit to PPL Corp., a person with knowledge of the matter told Bloomberg News. PPL, the owner of Pennsylvania’s second-largest utility, fell 7.7 percent to $25.60.
Robert Half International Inc. dropped 10 percent to $28.20 for the biggest decline in the S&P 500 and the stock’s biggest loss in more than nine years. The supplier of temporary workers posted a first-quarter profit excluding some items of 5 cents a share, missing the average analyst estimate of 6 cents.
AOL Inc. fell 14 percent to $23.96. The Internet advertising company spun off from Time Warner Inc. said first-quarter profit fell to 32 cents a share, from 78 cents a year earlier, on declining advertising sales.
Manitowoc Co. Inc. fell 9.7 percent to $13.66. The world’s biggest manufacturer of overhead cranes forecast first-half crane revenue will be lower than a year earlier.
Ford Motor Co., the only U.S. auto company to avoid bankruptcy last year, slid 2.4 percent to $13.25. Credit Suisse Group AG downgraded the shares to “underperform” from “neutral.”
“Ford had a very strong first quarter, but we do not think this level of profitability is sustainable,” analysts wrote in a report to clients.