U.S. stocks rose for a third week, driving benchmark indexes to five-year highs, as earnings from companies including General Electric Co. and Goldman Sachs Group Inc. beat estimates and debt-limit talks progressed.
Energy, industrial and consumer companies climbed the most among 10 groups in the Standard & Poor’s 500 Index as GE rallied 4.3 percent. A gauge of homebuilders rose to the highest level since 2007 amid better-than-expected housing data. Morgan Stanley jumped 11 percent after reaching profit-margin targets six months ahead of schedule. Dell Inc. surged 18 percent amid reports it’s in buyout talks. Bank of America Corp. and Intel Corp. sank at least 3.4 percent on disappointing results.
The S&P 500 rose 1 percent to 1,485.98, extending its 2013 advance to 4.2 percent. The Dow Jones Industrial Average added 161.27 points, or 1.2 percent, to 13,649.70. Both measures closed at their highest levels since December 2007.
“What’s driving the market is an improved economic backdrop and some growing hope that the Congress will come to some sort of reasonable solution to the overhang we’ve had,” Hank Herrmann, Overland Park, Kansas-based chairman and chief executive officer of Waddell & Reed Financial Inc., said in a phone interview. His firm manages $100 billion. “The early indications on earnings are that they’ve been reasonably constructive.”
Equities rose as about 72 percent of the 67 S&P 500 companies that have reported quarterly results beat estimates. Economic reports showed retail sales advanced more than forecast in December and housing starts climbed 12 percent, capping the best year for the industry since 2008. Confidence among American households unexpectedly fell to a one-year low this month, as higher payroll taxes create a risk that the biggest part of the economy will slow in early 2013.
The benchmark index rallied on the final day of the week after Speaker John Boehner said House Republicans plan to vote on a three-month extension of U.S. borrowing authority in an effort to force the Democratic-led Senate to adopt a budget plan. Lawmakers in Washington remain divided about raising the debt ceiling and cutting government spending.
The Treasury Department has said the U.S. will exceed its $16.4 trillion borrowing authority sometime from mid-February to early March. Since 1960, Congress has raised or revised the limit 79 times, including 49 times under Republican presidents, according to the department.
Apple Inc., Google Inc. and more than 80 other companies in the index are scheduled to announce earnings in the coming week, data compiled by Bloomberg show. Analysts are turning more optimistic, with fourth-quarter earnings projected to grow 3.8 percent, up from 2.5 percent at the end of last week, according to data compiled by Bloomberg.
“The federal spending cuts, sequestration, that overhang still exists,” Timothy Ghriskey, who helps oversee $2 billion as chief investment officer at Solaris Group LLC in Bedford Hills, New York, said in a Jan. 17 interview. “But I think what the quarter is showing us so far is that managers actually overall have not put the brakes on, that they continue to move companies ahead, and will adjust to whatever federal environment the government saddles us with.”
The S&P 500 has more than doubled from a 12-year low in 2009 as corporate earnings continued the three-year expansion and the Federal Reserved expanded its bond purchases to keep interest rates low to spur growth. The index is 5.1 percent below its all-time high of 1,565.15 set in October 2007.
The Chicago Board Options Exchange Volatility Index, which measures the cost of using options as insurance against declines in the S&P 500, fell 6.7 percent during the week to 12.46, the lowest level since April 2007.
Eight out of 10 S&P 500 groups advanced as energy, industrial and consumer companies rose more than 1.5 percent. The Dow Jones Transportation Average surged 2.2 percent to a record while the Russell 2000 Index added 1.4 percent to an all-time high.
GE increased 4.3 percent to $22.04. The company’s industrial businesses surpassed gains in finance as emerging-market expansion fueled the aviation and health-care divisions, which helped build a record $210 billion order backlog.
Goldman Sachs rallied 5.3 percent to $144.45 after quarterly profit beat estimates and full-year revenue grew for the first time since 2009.
Morgan Stanley jumped 11 percent to $22.38. The owner of the world’s biggest brokerage said earnings from that business more than doubled in the fourth quarter. The brokerage’s higher profitability strengthens Chief Executive Officer James Gorman’s plan to boost returns as he requests regulatory approval to buy Citigroup Inc.’s remaining 35 percent stake in the business.
An S&P index of homebuilders climbed 3.1 percent to the highest level since August 2007. PulteGroup Inc., the largest U.S. homebuilder by revenue, rose 6 percent to $20.49. Lennar Corp. added 2.8 percent to $42.08 after reporting fiscal fourth-quarter earnings that beat analysts’ estimates as revenue jumped 42 percent and profit margins climbed.
Dell rallied 18 percent to $12.84. Silver Lake Management LLC and partners are close to lining up about $15 billion in funds for a buyout of the third-biggest maker of personal computers, said people familiar with the matter.
Hewlett-Packard Co. jumped 5.9 percent to $17.11 for the biggest increase in the Dow. The personal-computer maker has been approached by investment bankers about selling assets, though it’s not currently considering such a move, according to a person with knowledge of the matter.
Bank of America dropped 4.2 percent, the most in the Dow, to $11.14. The second-biggest U.S. bank by assets said profit tumbled 63 percent, hurt by shrinking revenue and more costs from cleaning up bad mortgages.
Intel slumped 3.4 percent to $21.25. The world’s largest chipmaker reported a second straight quarter of declining sales. Intel also said sales may fall for a third quarter, highlighting the company’s struggle to adapt in a world swiftly embracing mobile devices and leaving behind the personal-computer industry it dominates.
Apple declined 3.9 percent to $500 after the Nikkei newswire reported that production of the iPhone was cut on weak demand. Apple ordered about half the 65 million iPhone 5 displays it originally targeted for this quarter, Nikkei said, citing an unnamed executive at a component maker.
Boeing Co. erased 0.2 percent to $75.04, after fluctuating between gains and losses during the week as defective batteries led regulators to ground the company’s global fleet of 787 Dreamliners.