The Standard & Poor’s 500 Index rose for a fourth week, the longest streak since October, as the Federal Reserve’s plans to keep interest rates low through at least late 2014 offset slower-than-forecast economic growth.
The S&P 500 trimmed its gain in the last two days of the week, and the Dow Jones Industrial Average erased its advance, after reports on new home sales and U.S. gross domestic product trailed economists’ estimates. Commodity, technology and industrial stocks had the biggest gains among 10 groups. Caterpillar Inc. and Apple Inc. increased at least 5.3 percent and Netflix Inc. rallied 23 percent after reporting earnings that topped analysts’ estimates.
The S&P 500 rose 0.1 percent to 1,316.33 this week to extend its 2012 gain to 4.7 percent, poised for its best January since 1997. The Dow, which climbed above its highest closing level since May 2008 during the week, retreated 60.02 points, or 0.5 percent, to 12,660.46.
“Everybody cheered” the announcement from the Fed, Mark Freeman, co-chief investment officer at Westwood Management Corp. in Dallas, said in a telephone interview. His firm oversees about $12 billion. “In an environment where the Fed’s going to continue to maintain negative real rates, growth in income will continue to be front and center for investors,” he said. “Investors are sitting back and, after the economic data, saying, ‘Wait a minute, let’s not get too carried away here.’”
20 Percent Rebound
The S&P 500 has jumped almost 20 percent from its 2011 low in October amid optimism that the U.S. economy will withstand Europe’s debt crisis. The index’s 50-day moving average is 0.2 percent away from exceeding the average price for the prior 200 days. The formation, known as a “golden cross,” will occur for the first time since 2010 and is historically a signal that more gains are likely to follow, Birinyi Associates Inc. said.
The S&P 500 climbed to its highest level since July on Jan. 25 after the Fed extended its commitment to keep interest rates low through at least late 2014 and Chairman Ben S. Bernanke signaled that central bankers haven’t ruled out additional asset purchases.
Stocks trimmed their weekly advance on Jan. 26 after a report showed that sales of new U.S. homes unexpectedly declined in December, capping the slowest year on record for builders. Stocks fell again the next day after the Commerce Department said the U.S. economy expanded at a 2.8 percent annual rate, trailing the median forecast of 79 economists for a 3 percent increase.
“On the surface, if you were looking for 3 percent and you only get 2.8 percent, that’s probably the overall disappointment,” Thomas Nyheim, a Greenville, Delaware-based money manager for Christiana Trust, which oversees $9.2 billion, said in a telephone interview. “The market has already had a good, strong run year-to-date, so we might be just pausing for the day.” Earnings reports have been “hitting expectations, or slightly above,” he said.
Companies from Apple to Newell Rubbermaid Inc. topped analysts’ income projections this week. Earnings-per-share have topped analysts’ estimates at 66 percent of the 169 companies in the S&P 500 that reported results since Jan. 9, Bloomberg data show.
Apple at Record
Apple jumped 6.4 percent to an all-time high of $447.28 this week after reporting record quarterly sales and profit, topping analysts’ estimates, as holiday purchases of the new iPhone helped the company steer clear of a consumer spending slump. Fiscal first-quarter earnings were $13.87 a share compared with the average estimate of $10.14. Sales climbed 73 percent to $46.3 billion.
Apple single-handedly erased a drop in S&P 500 earnings for the December quarter. Excluding Apple’s Jan. 24 results, earnings had declined 4.2 percent for the other companies that had reported.
Investors this week bought shares of companies most-tied to the economy on signs the Fed was committed to safeguarding growth. Raw-material producers gained the most out of 10 groups in the S&P 500, rising 1.5 percent. Technology and industrial stocks rose 1 percent and 0.7 percent respectively.
Caterpillar, the world’s biggest maker of construction and mining-equipment, posted fourth-quarter profit that beat analysts’ estimates and signaled Wall Street projections for this year were too conservative, bolstering expectations the world economy will escape a recession. Fourth-quarter net income rose to $2.32 a share. The average of 21 analysts’ estimates was $1.73 a share. Shares climbed 5.3 percent to $111.28.
Bank of America Corp. jumped 3.1 percent to $7.29, the second-biggest advance in the Dow. The second-largest U.S. lender by assets may reduce annual costs by as much as an additional $3 billion, Chief Executive Officer Brian T. Moynihan told employees.
DuPont Co. climbed 2.6 percent to $50.72. The most-valuable U.S. chemical maker posted fourth-quarter profit that exceeded analysts’ estimates as higher prices for titanium-dioxide pigment and other products offset falling sales volumes.
Netflix rallied the most in the S&P 500, rising 23 percent to $123.79. The online and mail-order video-rental service said it contained a subscriber revolt in the fourth quarter and forecast improving margins for its streaming business.
First Solar Inc. climbed 18 percent to $45.54 for the second-biggest gain in the S&P 500. Solar shares gained as chief executive officers from Suntech Power Holdings Co. and Trina Solar Ltd. said China may double its installations of solar panels this year, absorbing excess production that depressed prices and margins in 2011.
Verizon, Banks Slip
Telephone companies had the biggest decline this week in the S&P 500, falling 4.3 percent. Verizon Communications Inc. lost 4.5 percent to $37.21 as the second-largest U.S. phone company reported a fourth-quarter loss after booking a pension charge and having higher subsidy costs for rising iPhone sales. AT&T Inc., the largest U.S. phone company, erased 4.4 percent to $29.16 after predicting 2012 earnings that trailed analysts’ estimates.
Banks in the S&P 500 slipped 2.6 percent as a group, with Wells Fargo & Co. losing 3.1 percent to $29.60 to pace declines, on concern the Fed’s plan to extend the duration of record-low interest rates will diminish the profitability from lending.
Barton Biggs, who increased bets on U.S. equities before the S&P 500 Index rallied last month, said he remains bullish even amid concerns over Europe’s debt crisis.
“I’m terrified I’m not long enough if we’re going to have a strong rally here, which we could,” he said during an interview on Bloomberg Television’s “In the Loop” on Jan. 23. Biggs said his net-long position in equities is 65 percent. At the same time, “I’m terrified I’m too long if the apocalypse is coming in Europe,” he said.