U.S. Stocks Rise Before Earnings While Natural Gas Surges
U.S. stocks rose for a third day as investors awaited the start of second-quarter earnings season and euro-area finance ministers approved aid for Greece. European equities recovered from a July 5 slide, while shares and currencies in Asia declined.
The Standard & Poor’s 500 Index (SPX) added 0.5 percent at 4 p.m. in New York and the Russell 2000 Index of smaller U.S. companies rose 0.4 percent to a record. The Stoxx Europe 600 Index gained 1.4 percent after losing 1.3 percent on July 5, while the MSCI Asia Pacific Index slid 1.4 percent. The yield on 10-year Portuguese debt slipped 20 basis points to 6.93 percent. U.S. Treasuries rose after 10-year yields surged to a near two-year high. Egyptian shares tumbled the most in three weeks. Natural gas jumped more than 3 percent to lead commodities higher.
The S&P 500 climbed to a three-week high, adding to a 1 percent rally on July 5 when better-than-forecast jobs growth overshadowed concern the Federal Reserve will reduce stimulus. Alcoa Inc. started the earnings season after markets closed in New York, reporting a per-share profit of 7 cents that beat the average analyst estimate of 6 cents. Following the close in Europe, governments approved 3 billion euros ($3.9 billion) in aid to Greece, according to two European officials.
“The market appears to be discounting a strengthening economy in the second half and into 2014 and the earnings season really should give us some clarity as to whether that’s appropriate,” Gary Flam, who helps oversee $7 billion at Bel Air Investment Advisors LLC in Los Angeles, said in a phone interview. “I really don’t think the earnings season is going to be so much about the second quarter, but more about the pickup in the second half that the market appears to be anticipating.”
Global equities lost more than $3.8 trillion in value and U.S. Treasury yields climbed to an almost two-year high since Fed Chairman Ben S. Bernanke signaled May 22 that the central bank’s asset-buying program could be tapered should the job market continue to improve. The purchases, currently at $85 billion a month, helped the MSCI World Index of developed markets rally 19 percent in the past year.
Trading of S&P 500 stocks was 9 percent higher than the 30-day average while volume for Dow Jones Industrial Average companies was 17 percent below average, data compiled by Bloomberg show.
Dell Inc. rallied 3.1 percent after Institutional Shareholder Services Inc., the biggest shareholder-advisory firm, said investors should accept founder Michael Dell’s buyout offer. Priceline.com Inc. added 3.9 percent after Morgan Stanley raised its recommendation on the stock.
Intel Corp. dropped 3.6 percent, leading a retreat in technology companies, as analysts at Evercore Partners Inc. and Citigroup Inc. lowered earnings forecasts for 2013 and 2014 amid weakening demand for personal computers.
The S&P 500 gained 1.6 percent last week as better-than-estimated economic data tempered concern over a possible scaling back of Federal Reserve stimulus. Employers added more jobs than forecast in June, and other data during the week showed jobless claims decreased and manufacturing improved. While the index has fallen 1.7 percent since its May 21 record, it’s still up 15 percent for 2013.
“The world looks rosy to investors again, after the U.S. market rallied on much better-than-expected employment numbers that investors finally seem to be interpreting as good news,” said John Plassard, who helps oversee $28 billion as vice president at Mirabaud Securities LLP in Geneva. “With analysts having downgraded their expectations in recent weeks, we should be seeing fewer negative surprises in the U.S. earnings season, so sentiment is quite good.”
The same equity analysts who lowered second-quarter profit growth predictions to almost nothing in 2013 are raising price forecasts, convinced the economy is growing fast enough to lure more investors and boost valuations.
S&P 500 earnings grew 1.8 percent last quarter, down from a projection of 8.7 percent six months ago, according to more than 11,000 analyst estimates compiled by Bloomberg. At the same time, share-price targets for companies from GameStop Corp. to Goldman Sachs Group Inc. are rising at the fastest rate in two years. The U.S. equity gauge will increase 8.9 percent from last week’s close to a record 1,777.91 should the forecasts prove accurate.
Lower expectations helped about 73 percent of the companies in the benchmark measure exceed forecasts by an average of 5.1 percent for the first three months of the year, Bloomberg data show.
U.S. 10-year Treasury yields declined 10 basis points to 2.64 percent after touching 2.75 percent earlier today, the highest since August 2011. Volatility in Treasuries as measured by the Bank of America Merrill Lynch MOVE Index rose to 117.89 on July 5, the highest since December 2010. The index has averaged 64.26 this year.
European stocks rebounded, with trading 21 percent less than the 30-day average. Siemens AG jumped 4.1 percent as Osram Licht AG traded for the first time following a spinoff from the German engineering company.
Lloyds Banking Group Plc (LLOY) added 3.8 percent after a person with knowledge of the matter said former Standard Chartered Plc Chairman Mervyn Davies is assembling a group of investors to bid for part of the U.K. government’s stake in the mortgage lender. The Sunday Times reported that Singapore’s state-owned investment company made a preliminary approach about buying a 10 percent stake in Lloyds. Temasek said it does not comment on speculation.
Portugal’s PSI 20 Index climbed 2.3 percent. The country’s prime minister named Paulo Portas, the leader of the junior party in the governing coalition, as vice premier. The appointment helps cement a deal to hold the coalition together.
Egypt’s main stocks gauge tumbled 3.6 percent. Supporters of deposed President Mohamed Mursi clashed with the military today outside a main security installation, in violence that authorities said killed at least 40 people.
The MSCI Emerging Markets Index fell 1.1 percent, extending this year’s decline to 14 percent, compared with a 8.9 percent advance for the MSCI World gauge of developed nation shares. Benchmark indexes in Shanghai, Indonesia, Thailand and the Philippines lost more than 2.4 percent today.
India’s rupee, the Philippine peso, Malaysian ringgit and Thai baht declined at least 0.4 percent. Turkey’s lira rallied 0.9 percent from a record low as the central bank offered $500 million at currency auctions and said it would start “strong” monetary tightening.
Australia’s 10-year bond yield climbed eight basis points to 3.90 percent.
Greek 10-year bonds rose for a second day, pushing the 10-year yield 39 basis points lower to 10.93 percent. Euro-area finance ministers approved Greece to receive 2.5 billion euros this month and the remainder of the 3 billion euro aid in October, said two people familiar with the matter, who asked not to be identified because the decision hasn’t been announced.
Natural gas rallied 3.4 percent to $3.741 per million British thermal units, leading gains in commodities, on speculation that hotter weather may spur demand for the power-plant fuel. Forecasts showed above-normal temperatures from the Northeast into Central and Western states through July 22, said MDA Weather Services in Gaithersburg, Maryland. Gas prices are down 16 percent from a 21-month high of $4.444 on May 1 as stockpile gains topped five-year averages for five straight weeks amid mild weather.
Gold rose 1.1 percent to $1,236.97 an ounce and West Texas Intermediate oil was little changed around $103 a barrel. Oil trading in New York was about 25 percent above the average for the past 100 days, according to data compiled by Bloomberg.
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