U.S. Stocks Advance Amid Optimism About Europe, Earnings Reports

New York Stock Exchange
Specialist William Krumm works at his post on the floor of the New York Stock Exchange, July 18, 2011. Photographer: Richard Drew/AP

U.S. stocks rose this week, including the biggest one-day gain since March for the Standard & Poor’s 500 Index, as Europe pledged support for Greece to end the region’s debt crisis and earnings reports drove companies from Morgan Stanley to Advanced Micro Devices Inc. higher.

Morgan Stanley climbed 13 percent after posting the only quarterly gain in trading revenue among major U.S. banks. AMD jumped 21 percent, leading technology stocks in the S&P 500 to a 3.7 percent gain, after the chipmaker’s forecast beat analysts’ projections. Medco Health Solutions Inc. surged 22 percent as Express Scripts Inc. agreed to buy it. E*Trade Financial Corp. added 21 percent amid takeover speculation.

The S&P 500 increased 2.2 percent to 1,345.02 this week. It jumped 1.6 percent on July 19 amid optimism President Barack Obama and lawmakers will agree to raise the nation’s debt limit before an Aug. 2 deadline. The Dow Jones Industrial Average rose 201.43 points, or 1.6 percent, to 12,681.16 since July 15.

“Europe’s agreement on Greece will help relieve people’s anxieties,” John Carey, a Boston-based money manager at Pioneer Investments, said in a telephone interview. The firm oversees about $250 billion. “It’s been all about earnings as the macroeconomic and geopolitical concerns recede a bit in part because they are getting addressed. People have been heartened by the impressive earnings and there’s been a lot of M&A activity. Almost every day there seems to be a deal, so that also tends to stimulate interest in the market.”

Earnings Season

Corporate profit reports helped drive U.S. stocks higher. Since July 11, 82 percent of S&P 500 companies that released quarterly results exceeded the average analyst earnings estimate, according to data compiled by Bloomberg. Apple Inc., the maker of iPhones and iPads, topped projections by 33 percent on July 19. Wynn Resorts Ltd., a casino operator, beat by 56 percent, the most in the index.

Equities advanced as European leaders arranged assistance for Greece. Officials said July 21 that the nation will receive aid worth 160 billion euros ($230 billion) and empowered their bailout fund to buy the debt of stressed nations and offer emergency credit lines.

Morgan Stanley rose 13 percent, the most since May 2009, to $23.90. The bank reported a second-quarter loss of 38 cents a share that was smaller than the average analyst estimate of 61 cents a share.

Morgan Stanley

Trading revenue at Morgan Stanley increased 14 percent from the first quarter, while Goldman Sachs Group Inc. posted a 47 percent drop earlier in the week. The results may help Morgan Stanley Chief Executive Officer James Gorman convince investors the firm can reach his goals of increasing profitability and gaining market share in trading.

Goldman Sachs rallied 4.1 percent to $135.49.

The rally in technology shares sent the Nasdaq-100 Index to the highest level since February 2001. The measure derives 66 percent of its value from computer-related companies, according to data compiled by Bloomberg.

AMD soared 21 percent to $7.75. The second-largest maker of processors for personal computers forecast third-quarter sales that exceeded analysts’ estimates, citing new chip orders.

Intel Corp., its biggest rival, rose 3.4 percent to $23.13.

Apple Inc. added 7.8 percent to $393.30. The biggest technology company by market value reported third-quarter profit that topped estimates, lifted by record sales of iPhones and iPad tablets. Earnings of $7.79 a share beat the average analyst forecast of $5.87 a share.

Medco, E*Trade

Medco surged 22 percent to $65.96 after Express Scripts agreed to buy it for $29.1 billion in the largest deal in at least a decade among U.S. companies that manage prescription-drug benefits. Buying Medco gives Express Scripts the scale to become dominant among companies that handle drug benefits for corporate and government clients.

E*Trade, the online brokerage that has fallen 94 percent since June 2007, advanced 21 percent to $15.64. Citadel LLC, the company’s largest shareholder, said July 20 that E*Trade should hold a special meeting and remove two of its directors to address the “catastrophic losses” for shareholders. Yesterday, E*Trade responded by saying the board decided to hire Morgan Stanley to explore a sale of the company.

Motorola Mobility Holdings Inc. rose 17 percent to $24.61. Billionaire Carl Icahn urged the company to explore alternatives for its patents after Nortel Networks Corp. sold wireless-technology intellectual property for $4.5 billion.

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