U.S. Stocks Gain on Earnings; Oil Reaches Four-Month High

U.S. stocks rose on better-than-forecast earnings from companies including Pfizer Inc. and Valero Energy Corp., returning benchmark indexes to five-year highs. Oil helped lead a rally in commodities as global reports boosted economic confidence, while the dollar fell.

The Standard & Poor’s 500 Index added 0.5 percent to 1,507.84 at 4 p.m. in New York and the Dow Jones Industrial Average jumped to the highest since October 2007, the month of its record. Oil climbed 1.2 percent to a four-month high of $97.57 a barrel and silver jumped 2 percent to send the S&P GSCI Index of commodities to the highest level since October. The euro strengthened 0.3 percent to $1.3490, its strongest since 2011. Ten-year Treasury yields were almost 2 percent a day after rising above that threshold for the first time since April.

The S&P 500 extended its best start to a year since 1989 as profit beat the average analyst estimate at 75 percent of the 175 companies in the index that posted results so far this reporting season. U.S. home prices rose by the most in six years, the 20-city S&P/Case-Shiller index showed, while reports from Germany to Australia signaled improved global sentiment. Equities remained higher even as U.S. consumer confidence fell more than forecast in January, reaching the lowest level in more than a year.

“The market’s responding favorably to, and will continue to respond favorably to, the earnings reporting season because the majority of companies will beat expectations,” Hank Smith, who helps oversee $6.5 billion as chief investment officer of Haverford Trust Co. in Radnor, Pennsylvania, said in a phone interview. “The market is all about expectations.”

Earnings Season

The S&P 500 has more than doubled from a 12-year low in 2009 as corporate earnings grew for three years and the Federal Reserve increased its bond purchases to keep interest rates low to spur growth. The S&P 500, which has rallied 5.7 percent so far this year, is less than 4 percent below its record of 1,565.15 set in October 2007 while the Dow Jones Industrial Average is less than 2 percent from its all-time high the same month.

U.S. companies from Pfizer to 3M Co. are beating analysts’ quarterly sales estimates at the highest rate in 1 1/2 years, undeterred by political gridlock in Washington and slowing demand in China. The 67 percent beat rate is the highest percentage since the second quarter of 2011, according to data compiled by Bloomberg. Fewer than half the companies had surprise sales gains in the second and third quarters.

Pfizer rallied 3.2 percent as adjusted earnings beat projections and the drugmaker forecast higher-than-expected full-year profit after introducing two products with the potential to each generate more than $1 billion a year.

Energy shares climbed as Valero jumped 13 percent to a four-year high after posting a 20-fold gain in earnings and Paul Singer’s Elliott Management Corp. urged Hess Corp. to consider a spinoff of U.S. shale assets, sending its shares up 9 percent in the biggest gain since 2008. Ford Motor Co. slid 4.6 percent after saying it expects to lose about $2 billion in Europe this year as a likely recession in the region continues to sap demand for cars.

Housing Data

D.R. Horton Inc. jumped 12 percent, the most in almost four years, to lead a rally in homebuilders after earnings more than doubled in its fiscal first quarter amid low mortgage rates and a shrinking inventory of existing residences.

The S&P/Case-Shiller index of property values increased 5.5 percent in November, the biggest year-over-year gain since August 2006. The median projection of 30 economists surveyed by Bloomberg called for a 5.6 percent advance. The Conference Board’s index of consumer confidence decreased to 58.6, the weakest since November 2011, from a revised 66.7 in December, figures from the research group showed today, as higher payroll taxes took a bigger bite out of Americans’ paychecks.

Asset Purchases

Silver, lead, copper and gold increased at least 0.6 percent as 18 of 24 commodities in the S&P GSCI Index climbed, sending the gauge to the highest since October.

Gold holdings in exchange-traded products are poised for the biggest monthly decline in more than a year as global economic recovery curbs demand for the metal. Assets contracted 0.8 percent so far in January, the largest decrease since December 2011, according to data compiled by Bloomberg. The holdings, which reached a record in December, dropped to a two-month low of 2,610.272 metric tons yesterday.

Analysts from Credit Suisse Group AG to Goldman Sachs Group Inc. are calling for gold to peak in 2013 after a 12-year rally as the global economy rebounds. U.S. durable-goods orders rose in December for an unprecedented fourth consecutive month, data showed yesterday, while China’s economy snapped a seven-quarter slowdown in the final three months of 2012.

Cotton Production

Cotton jumped 1.7 percent to 82.39 cents a pound and is up 9.6 percent in January, heading for the biggest monthly gain in two years. Plunging production in the U.S., the world’s largest exporter, will help erode a global surplus and send prices surging as much as 17 percent this year, according to T&K Futures & Options Inc.

The U.S. dollar fell against 15 of its 16 major counterparts as investors pared expectations that the Fed will signal a change to its asset-buying program at the end of a two-day meeting tomorrow. The Fed’s latest round of bond buying will reach $1.14 trillion before it ends the program in the first quarter of 2014, according to median estimates in a Bloomberg survey of economists.

Investor speculation that the Fed will end its third round of quantitative easing in 2013 is overdone, Bank of America Merrill Lynch economist Michael Hanson and strategist Priya Misra told clients in a note. Tomorrow’s statement from the Federal Open Market Committee is likely to keep the central bank’s current policy stance in place, they said.

‘Very Curious’

“The Fed meeting will be, as always, very closely watched,” Smith said. “The market’s going to be very curious and read into any commentary as to if the Fed lets on when this non-traditional easing will start to end.”

The Stoxx Europe 600 Index added 0.3 percent, returning to an almost two-year high after slipping 0.1 percent yesterday.

Royal Philips Electronics NV climbed 2.3 percent after the world’s largest lighting manufacturer reported fourth-quarter results that topped analyst estimates. William Hill Plc gained 2.1 percent after the bookmaker reporter a jump sales. Anglo American Plc led mining companies higher, rallying 3 percent. Software AG tumbled 17 percent after posting fourth-quarter earnings and sales that missed analysts’ estimates.

‘Stock Picking’

“There’s a real opportunity for stock picking now,” Daniel Morris, a global strategist at JPMorgan Chase & Co. in London, said on Bloomberg Television. “Even if you do see a bit of a dip in equity markets, you can buy now. The market is somewhat inexpensive relative to history.”

German two-year notes rose for the first time in four days, sending the yield three basis points lower to 0.27 percent, after the European Central Bank said it will lend banks 124.1 billion euros ($166.7 billion) for seven days, little changed from the previous week.

The rate on two-year Italian debt fell four basis points to 1.53 percent as borrowing costs fell at a government auction of bills.

India’s rupee strengthened against 13 of 16 major currencies as the central bank cut borrowing costs and the amount of deposits lenders must set aside as reserves.

Emerging Markets

The MSCI Emerging Markets Index rose 0.8 percent, snapping four days of losses. South Korea’s Kospi index jumped 0.8 percent. The Shanghai Composite Index climbed 0.5 percent, extending gains from a low on Dec. 3 to more than 20 percent, the threshold for a bull market.

Egypt’s benchmark EGX 30 Index retreated 2 percent after the country’s main opposition bloc rejected talks with President Mohamed Mursi, signaling the nation’s political crisis may be prolonged. The Tel Aviv 25 Index slipped 0.9 percent after Bank of Israel Governor Stanley Fischer informed Prime Minister Benjamin Netanyahu of plans to step down on June 30.

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