S&P 500 Rises to Two-Month High on Earnings Amid Fed Bets

U.S. Stocks Are Little Changed as Economic Data Temper Earnings
International Business Machines Corp. climbed 3.6 percent to $195.03. Photographer: Scott Eells/Bloomberg

U.S. stocks rose, sending the Standard & Poor’s 500 Index to a two-month high, amid better-than-estimated earnings and bets that disappointing economic data will lead the Federal Reserve to add stimulus.

International Business Machines Corp., the biggest computer-services provider, and EBay Inc., the largest Internet marketplace, gained at least 3.7 percent as profits beat forecasts. Walgreen Co. soared 12 percent after renewing a contract with Express Scripts Inc. Morgan Stanley slid 5.3 percent after missing estimates as trading revenue plunged. Google Inc., owner of the most popular search engine, rose 3.1 percent at 5:34 p.m. New York time as revenue surged 35 percent.

The S&P 500 advanced 0.3 percent to 1,376.51 at 4 p.m. New York time, the highest since May 3. The Dow Jones Industrial Average added 34.66 points, or 0.3 percent, to 12,943.36. The Nasdaq Composite Index gained 0.8 percent to 2,965.90. Volume for exchange-listed stocks in the U.S. was 7 billion shares today, up 4.8 percent from the three-month average.

“We’ve been watching very good earnings, but there were too many disappointing economic reports today,” Richard Sichel, who oversees $1.6 billion as chief investment officer at Philadelphia Trust Co., said in a phone interview. “There’s some comfort based on the idea that if things get worse, the Fed will do something. We’ll have to wait and see.”

Today’s advance extended a three-day rally in the S&P 500 to 1.7 percent. Earnings have exceeded analyst estimates at about 71 percent of the 108 S&P 500 companies that have reported quarterly results so far, according to data compiled by Bloomberg. Analysts project a 2.1 percent decline in second-quarter profits, the data showed.

Economic Data

Investors also watched economic data. Sales of existing U.S. homes unexpectedly dropped and manufacturing in the Philadelphia region contracted for a third month. Other reports today showed consumer confidence weakened, claims for unemployment benefits rose and an index of leading economic indicators declined more than forecast.

Earlier this week, Federal Reserve Chairman Ben S. Bernanke said policy makers are studying options for further easing that could be deployed in case economic growth remains too feeble to produce a lasting decline in unemployment. The Federal Open Market Committee meets Aug. 1 to continue debating whether further action is needed.

Bets on more stimulus measures and better-than-estimated earnings helped send the Morgan Stanley Cyclical Index of companies most-tied to the economy up 2.7 percent in three days. Technology companies, which make up about 20 percent of the S&P 500, added 1.4 percent today for the best gain among 10 groups.

IBM’s Results

IBM climbed 3.8 percent, the most since Jan. 20, to $195.34. IBM, which accounts for more than 11 percent of the Dow, added 54 points to the share price-weighted average.

The company’s decade-long shift to higher-margin software sales helped it overcome a slowdown in technology spending last quarter. IBM aims to get half of its earnings from software by 2015 -- a move away from less-profitable hardware and services.

EBay soared 8.6 percent to $43.95, the highest price since 2006. Chief Executive Officer John Donahoe has increased spending on advertising and new technology to expand beyond EBay’s auction roots and let shoppers buy more items in instant sales, similar to those on Amazon.com Inc.’s site.

Google rallied 3.1 percent to $611.15 after the close of regular trading. Including the impact of Motorola Mobility Holdings acquisition, sales were $12.2 billion, compared with $9.03 billion a year earlier. Profit before some costs was $10.12 a share.

Microsoft, Qualcomm

Microsoft Corp. also reported results after the close of regular trading. Fourth-quarter unearned revenue, a yardstick of future sales, topped analysts’ estimates. The largest software maker gained 2.4 percent to $31.41 at 5:34 p.m. New York time.

Qualcomm Inc. increased 4.3 percent to $58.44. The largest seller of mobile-phone semiconductors gained after quarterly results showed consumers in emerging markets are trading up to next-generation handsets, lifting profitability.

Textron Inc. rallied 12 percent to $26.50 as earnings beat estimates. The company is considering a bid for part or all of Hawker Beechcraft Inc., the bankrupt business-jet maker in exclusive talks with China’s Superior Aviation Beijing Co.

Capital One Financial Corp. climbed 2.7 percent to $56.37. The lender that gets more than half of its revenue from credit cards reported results that exceeded some analysts’ estimates.

Walgreen soared 12 percent, the most since 2008, to $34.62. The largest U.S. drugstore chain renewed a contract to provide Express Scripts customers with prescriptions, ending a dispute that contributed to an 11 percent drop in the retailer’s quarterly profit.

Express Scripts

Express Scripts rallied 1.9 percent to $58.76. CVS Caremark Corp. lost 6.5 percent to $45.43.

J.C. Penney Co. jumped 4.8 percent to $20.66. Bill Ackman, the founder of Pershing Square Capital Management LP, reiterated his confidence in Chief Executive Officer Ron Johnson’s turnaround efforts.

Electronic Arts Inc. surged 6.7 percent to $12.27. The second-largest video-game publisher gained after Chief Executive Officer John Riccitiello suggested investors are overlooking the company’s growth potential.

Some of the largest financial institutions declined today. Morgan Stanley slumped 5.3 percent to $13.25. The New York-based company reported a 50 percent drop in earnings and said it will cut more jobs as revenue from trading stocks and bonds declined the most among Wall Street banks.

Bank Shares

Bank of America Corp. dropped 3.6 percent to $7.26. Citigroup Inc. lost 1.9 percent to $26.59. JPMorgan Chase & Co. retreated 1.4 percent to $34.46.

Phone shares had the biggest decline among 10 groups in the S&P 500, falling 1.8 percent.

Verizon Communications Inc., the second-largest U.S. phone company, dropped 2.9 percent to $44.54. Second-quarter net income attributable to Verizon rose to $4.29 billion, or 64 cents a share, from $3.6 billion, or 57 cents, a year earlier. That matched the average estimate of analysts, according to data compiled by Bloomberg.

Johnson Controls Inc. dropped 7.9 percent to $26.07. The largest U.S. auto supplier lowered its forecast for profit for the fourth quarter because of softness in global markets.

UnitedHealth Group Inc. slipped 2.4 percent to $54.99. Chief Executive Officer Stephen Hemsley said profit margins are being squeezed in its Medicare and Medicaid plans.

Safeway Inc. slid 4.2 percent to $15.80. The second-largest U.S. grocer reported a 17 percent decline in quarterly profit from continuing operations.

90% Decline

Greenhill & Co. retreated 3.5 percent to $36.36. The advisory firm founded by Robert Greenhill reported a 90 percent drop in second-quarter net income.

Millionaires added U.S. stocks more than any other asset in the latest year as average investors fled to bonds, according to a survey by Fidelity Investments.

Twenty percent of the 1,020 households surveyed said they bought individual domestic equities in the 12 months ended in March, the Boston-based mutual fund firm said. Cash ranked second, with 13 percent saying they added to that asset class. Eleven percent purchased exchange-traded funds, and 10 percent each added individual U.S. bonds or domestic stock funds.

The broader investing public has sought refuge in fixed income since the global credit crisis sent the S&P 500 down 38 percent in 2008, eight years after the meltdown in technology stocks. U.S. equity mutual funds suffered net withdrawals of $130 billion in the 12 months ended March 31, according to Chicago-based research firm Morningstar Inc. Bond funds attracted $191 billion. The S&P 500 gained 9.2 percent this year through yesterday.

“They’re probably ahead of the average investor in how they view opportunities,” Bob Oros, executive vice president in Fidelity’s institutional wealth services group, said of millionaires in an interview. “They’re becoming less and less risk-averse.”