U.S. Stocks Rise on Optimism Earnings Can Support Run to Records

  • Dow average extends longest winning streak since 2013
  • Technology shares rise to the highest level since 2000

U.S. stocks advanced, pushing to fresh records, as quarterly results from Microsoft Corp. and Morgan Stanley spurred optimism that corporate earnings can support further gains.

Microsoft rallied to a three-month high after posting a better-than-predicted profit, boosting technology shares to the highest in almost 16 years. Morgan Stanley rose 2.1 percent as its earnings beat estimates, bolstered by a surprise gain in fixed-income trading revenue. Abbott Laboratories and Intuitive Surgical Inc. also gained on results that exceeded forecasts. Walt Disney Co. lost 1.3 percent after an analyst downgraded the shares.

The S&P 500 Index rose 0.4 percent to 2,173.02 at 4 p.m. in New York, its sixth all-time high in eight days. The Dow Jones Industrial Average gained 36.02 points, or 0.2 percent, to 18,595.03. The gauge advanced for a ninth session, the longest since 2013, to post a seventh consecutive record. The Nasdaq Composite Index increased 1 percent. About 6.2 billion shares traded hands on U.S. exchanges, 14 percent below the three-month average.

“Markets have been resilient,” Quincy Krosby, a market strategist at Prudential Financial Inc. in Newark, New Jersey, said by phone. “Much of the data coming in and earnings announcements have been better than expected. The market is looking for clarity that companies are more positive about the second half of the year. We’ve been in earnings recession for so many quarters we’re now thinking about earnings as whether they’re ‘less bad.”’

U.S. shares have recovered their losses following the U.K.’s decision to leave the European Union amid signs of strength in the economy and speculation that the Federal Reserve will take its time raising interest rates. Traders are pricing in less than even odds of a hike until March 2017, though bets on a move by this December have climbed to 48 percent from just 12 percent two weeks ago.

The S&P 500 is up 6.3 percent in 2016 after a rebound from the worst-ever start to a year sparked by worries that slowing growth in China would spread and oil’s plunge to a 12-year low. Anxiety over the U.K.’s Brexit vote briefly derailed stocks last month before assurances that major central banks would act to counter ill effects from Britain’s secession helped usher equities to all-time highs.

With stocks continuing to climb, investor nervousness has cooled. The CBOE Volatility Index, a measure of market turbulence known as the VIX, fell 1.7 percent today to 11.77, the lowest since August 2014.

Earnings Season

Of the S&P 500 firms that have released results so far this season, 78 percent beat earnings estimates and 61 percent topped sales projections. Still, analysts forecast profit at its members will drop 5.8 percent in the second quarter, which would make it a fifth straight decline, the longest streak since 2009. General Motors Co. and AT&T Inc. are among 34 companies set to release results on Thursday.

“Microsoft has for a long time has been one of the bellwether stocks for the U.S. -- it is reflective to some extent of the whole economy and can feed through,” said Frances Hudson, an Edinburgh-based global thematic strategist at Standard Life Investments. “I am seeing more greens than reds in terms of earnings beats, which seems relatively positive. Earnings season is definitely the main event right now.”

In Wednesday’s trading, technology shares were the strongest performers among the S&P 500’s 10 main industries, led by Microsoft’s best rally since January. The tech group rose to the highest since September 2000. Health-care stocks climbed to their loftiest level in 11 months, bolstered by Intuitive Surgical’s rise to a record. Stocks perceived as defensive lagged, with utilities, consumer staples and phone companies declining.

Tech Surge

Joining Microsoft to support the rally in tech, Cisco Systems Inc. added 2.4 percent to take the network-equipment maker’s shares to the highest in more than eight years. Visa Inc. rose 0.8 percent to a five-week high before its earnings report scheduled for tomorrow, and Facebook Inc. advanced 1.1 percent to a record.

Chipmakers climbed to their best levels in 15 years. Intel rallied 1.5 percent before its earnings report, while Micron Technology Inc. and Skyworks Solutions Inc. gained at least 1.7 percent. Marvell Technology Group Ltd. jumped 14 percent, the strongest in seven years, after its profit beat estimates. All 30 members of the Philadelphia Stock Exchange Semiconductor Index advanced more than 0.2 percent.

Managed-care companies recovered from declines yesterday after Aetna Inc. said it’s ready to go to court if necessary to proceed with its $37 billion takeover of Humana Inc. Humana rose 3.3 percent, mostly reversing a slide Tuesday prompted by a report that regulators were poised to file lawsuits to block the deal. Aetna increased 1.2 percent, and Anthem Inc., which plans to merge with Cigna Corp., added 2.6 percent.

Earnings news also helped industrials extend all-time highs, amid the sector’s 10th gain in 11 days. Cintas Corp. surged 9.7 percent to a record, its biggest climb in five years. The uniform company raised its profit outlook after quarterly results were better than predicted. Illinois Tool Works Inc. added 2.8 percent after also lifting its earnings forecast on better-than-estimated results.

Weighing on the consumer-staples group, Kellogg Co. sank 5.4 percent, the worst drop in almost two years, amid diminished speculation over a potential takeover offer. Campbell Soup Co. slid 3.1 percent after lowering its 2016 sales forecast.

Energy producers slipped 0.2 percent, even as crude rebounded after a government report showed stockpiles fell a ninth week, marking the longest stretch of declines on record. Halliburton Co. fell 1.6 percent after reporting quarterly sales that slid 43 percent compared to a year earlier. Chesapeake Energy Corp. and Anadarko Petroleum Corp. added at least 1.2 percent.

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