April 16 (Bloomberg) -- U.S. stocks rallied, with the Standard & Poor’s 500 Index rebounding from its biggest drop since November, as housing starts and earnings from Coca-Cola Co. to Johnson & Johnson topped estimates.
All 10 industry groups advanced as raw-materials and consumer-staples companies gained the most, rising at least 1.7 percent. Coca-Cola jumped 5.7 percent as Latin American sales volume increased. Johnson & Johnson added 2.1 percent as new drugs and the acquisition of Synthes Inc. boosted sales.
The S&P 500 climbed 1.4 percent to 1,574.50 at 4 p.m. in New York, for the largest increase since Jan. 2. The equity benchmark index plunged 2.3 percent yesterday, its biggest tumble since Nov. 7, after China’s economy grew at a slower pace than forecast and a slump in gold weighed on commodity shares. The Dow Jones Industrial Average rose 157.58 points, or 1.1 percent, to 14,756.78 today. About 6.4 billion shares traded on U.S. exchanges, in line with the three-month average.
“The almost under-the-radar improvement in housing is one of the most important positive elements in the economy,” Stephen Wood, who helps manage about $163 billion as the New York-based chief market strategist for North America at Russell Investments, said by telephone. “It’s balancing off the punctuations of volatility,” he said. “There is an economy in the U.S. which we don’t see going into recession, corporate profitability is in a maturing cycle but continues to come in positive, and the Federal Reserve’s accommodative.”
New-home construction in the U.S. jumped more than forecast in March as multifamily projects climbed to the highest level in more than seven years, according to Commerce Department figures. Separate data showed the cost of living declined in March for the first time in four months as cheaper gasoline and clothing kept inflation in check. Factory production unexpectedly dropped, adding to recent signs that manufacturing is cooling.
The International Monetary Fund cut its global growth forecast and urged European policy makers to use “aggressive” monetary policy as a second year of contraction leaves the euro area’s recovery lagging behind the rest of the world. The global economy will expand 3.3 percent this year, less than the 3.5 percent forecast in January, the Washington-based fund said, trimming its prediction for this year a fourth consecutive time.
U.S. equities rallied last week, sending the S&P 500 to a record, amid optimism that global stimulus efforts and corporate earnings growth will continue to power the four-year bull market. Fed Bank of New York President William C. Dudley said today that a slowdown in the pace of employment growth in March highlights the need to maintain the pace of bond purchases.
“We’re in a little bit of a sweet spot where the economic data is good enough to keep us out of fears of a recession, but not so good that the Federal Reserve is going to start to tighten in the near future,” Brad Sorensen, director of market and sector analysis at San Francisco-based Charles Schwab Corp., said by telephone. His firm has $2.08 trillion in client assets. “We saw a lot of tempering of expectations in the pre-announcement season, and that set up the potential for beating expectations when the numbers come in.”
Some 12 companies on the S&P 500 report earnings today. Of the 43 stocks that have reported their financial results so far this season, 71 percent have beaten estimates for profit and 56 percent have exceeded forecasts for sales.
The Chicago Board Options Exchange Volatility Index, or VIX, fell 19 percent to 13.96. The VIX, which moves in the opposite direction to the S&P 500 about 80 percent of the time, surged 43 percent yesterday, the most since August 2011, as U.S. stocks tumbled. Stocks extended losses yesterday as bombs killed three people near the finish line of the Boston Marathon, while almost all of the day’s decline came before the incident.
The Morgan Stanley Cyclical Index advanced 1.9 percent while the Dow Jones Transportation Average rallied 2.2 percent. The Russell 2000 Index of small companies climbed 1.8 percent after tumbling 3.8 percent yesterday.
Raw-materials producers in the S&P 500 climbed 1.9 percent, the most among 10 industries. Gold gained 1.9 percent as some investors deemed a 13 percent plunge over two days to be excessive and Central Bank of Sri Lanka Governor Ajith Nivard Cabraal said that policy makers may take the opportunity to buy.
Vulcan Materials Co. jumped 6.8 percent to $48.69. The producer of construction aggregates was raised to buy from neutral by Todd Vencil, an analyst at Sterne, Agee & Leach Inc.
International Paper Co. climbed 4.7 percent to $47.47. The world’s largest maker of cardboard packaging was rated outperform, an equivalent of buy, in new coverage at Macquarie Group Ltd.
Coca-Cola rose 5.7 percent, the most since February 2009, to $42.37. Excluding some items, profit was 46 cents a share, compared with the 44-cent average of 14 analysts’ estimates compiled by Bloomberg. The company also announced a deal to sell some bottling distribution rights in North America.
Johnson & Johnson added 2.1 percent to $83.44. The world’s largest maker of health-care products said earnings excluding one-time items were $1.44 a share, topping by 5 cents the average of 11 analysts’ estimates compiled by Bloomberg.
The Bloomberg U.S. Airlines Index rallied 5.6 percent, the most since October 2011. All of its 10 members gained. Delta Air Lines Inc. rose 6.4 percent to $15.87 while United Continental Holdings Inc. added 6.1 percent to $30.86.
Alaska Air Group Inc. jumped 7.9 percent to $61.12 after Deutsche Bank AG boosted the stock to buy from hold.
An S&P index of homebuilders climbed 2.8 percent. PulteGroup Inc. increased 4.2 percent to $18.60 while Lennar Corp. added 2.4 percent to $38.70.
J.C. Penney Co. gained 5.6 percent to $15.19. The retailer is exploring ways to borrow against its real estate holdings to help raise cash, two people with knowledge of the situation said. The company and its financial advisers are considering options including spinning off real estate into a new subsidiary that could issue debt, said one of the people, who asked not to be named because the matter is private.
W.W. Grainger Inc. jumped 7.2 percent to a record $241.88. The hardware supply distributor boosted the low end of its full-year profit and sales forecasts as first-quarter earnings beat analysts’ estimates.
Goldman Sachs Group Inc. fell 1.6 percent to $144.10. The Wall Street bank that generates the highest percentage of revenue from trading dropped after revenue from that business fell more than its rivals. First-quarter revenue from trading stocks and fixed-income products fell 12 percent to $5.22 billion, excluding accounting charges. That missed the estimate of $5.48 billion from Oppenheimer & Co.’s Chris Kotowski and $5.25 billion from Credit Suisse Group AG’s Howard Chen.
Citigroup yesterday reported that fixed-income trading rose 69 percent from the fourth quarter, topping analysts’ estimates. JPMorgan, the biggest U.S. bank by assets, reported last week that trading revenue fell 5 percent. Bank of America Corp., the second-largest lender, is set to release results tomorrow. Morgan Stanley, the sixth-biggest bank, is due on April 18.
U.S. Bancorp slipped 1.8 percent to $32.72. The nation’s largest regional lender reported first-quarter revenue that missed analysts’ estimates. U.S. Bancorp and Goldman Sachs had the biggest declines in the S&P 500 today.
Yahoo! Inc. dropped 3.7 percent to $22.92 in extended trading as of 4:44 p.m. New York time. After the market close, the biggest U.S. Web portal forecast sales that fell short of analysts’ estimates as it continued to lose advertisers to Google Inc. and Facebook Inc.
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