U.S. Stocks End Week at Record Highs on Earnings, Fed QE

U.S. stocks rose for the week, sending the Standard & Poor’s 500 Index above 1,700 for the first time, as central banks vowed to maintain stimulus and data showed economic growth beat projections in the second quarter.

Goodyear Tire & Rubber Co. gained 13 percent for the week as earnings topped forecasts. Facebook Inc. jumped 12 percent, rising above its $38 initial public offering price. Dell Inc. advanced 5.7 percent as Michael Dell agreed to sweeten his offer for the computer maker. Exxon Mobil Corp. and Chevron Corp. lost more than 2 percent as profits missed estimates. Mosaic Co. and Potash Corp. of Saskatchewan Inc. each fell 22 percent after OAO Uralkali ended limits on potash production.

The S&P 500 rose 1.1 percent to 1,709.67 for the five days. The Dow Jones Industrial Average climbed 99.53 points, or 0.6 percent, to 15,658.36, advancing for the sixth straight week. Both gauges finished the week at record highs.

“We’ve had more talk this week from the FOMC meeting and from the ECB that the spigot is still turned on,” Michael Mullaney, Boston-based chief investment officer for Fiduciary Trust Co., said in a telephone interview. His firm oversees $10 billion. “They basically have put a safety net under investors. We are overweight in equity right now.”

Global stocks rallied after the Federal Reserve said persistently low inflation could hamper the economy and pledged to keep buying $85 billion in bonds every month. European Central Bank President Mario Draghi said recent economic indicators signal that the euro region is through the worst and reiterated that officials plan to keep interest rates low for the foreseeable future.

GDP Growth

Data during the week showed U.S. gross domestic product, the value of all goods and services produced, rose at a better-than-forecast 1.7 percent annualized rate last quarter, after a 1.1 percent gain the prior quarter, and manufacturing expanded in July. While Fed officials said the labor market has shown “improvement,” a report on Aug. 2 showed American companies added fewer workers than anticipated in July. The jobless rate fell to 7.4 percent.

Federal Open Market Committee policy makers have been debating the pace and timing of any cuts in the monetary stimulus that has helped propel the S&P 500 up more than 150 percent from its bear-market low in 2009. Tapering of the pace of asset purchases may begin in September, according to a growing number of economists surveyed by Bloomberg from July 18 to July 22.

‘No Surprises’

“Investors were generally encouraged by earnings, economic data and there being really no surprises from central banks,” Frederic Dickson, chief investment strategist who helps oversee $35 billion at D.A. Davidson & Co. in Lake Oswego, Oregon, said in a telephone interview. “Investors walked away with a pretty good feeling that we have already seen the worst of the flow of economic data and translated that into higher stock prices.”

Investors have increasingly turned to stocks as $38.1 billion poured into exchange-traded funds listed in the U.S. last month, the most since December 2008 and the fourth-highest inflow ever, according to data compiled by Bloomberg since 2000. Almost $30 billion of the deposits went to funds that buy and sell American equities.

Stock valuations have climbed, with the S&P 500 trading at 15.5 times projected earnings, compared with an average of 13.9 over the last five years, according to data compiled by Bloomberg.

Company Earnings

The Chicago Board Options Exchange Volatility Index, which measures the cost of protecting against swings in the S&P 500, dropped 5.8 percent to 11.98 for the week. The VIX is at its lowest level since March 15.

Of the 391 companies in the S&P 500 that have reported earnings so far, 74 percent have topped analysts’ estimates, according to data compiled by Bloomberg. About 56 percent have beaten revenue projections. About 57 S&P 500 companies are scheduled to release quarterly results in the coming week.

“From companies reporting earnings, what we’ve seen is fairly good numbers,” Brian Burrell, equity research analyst for Thornburg Investment Management Inc., said in a telephone interview from Santa Fe, New Mexico. His firm oversees about $90 billion. “It’s important to note that a lot of the beats that we have seen are coming from the bottom line and strong margins.”

Industrials Rally

Industrial companies led gains among the 10 major industries in the S&P 500, rising 2.1 percent for the week. Caterpillar Inc. jumped 2.7 percent to $84.30 and Lockheed Martin Corp. added 3.1 percent to $123.77.

Pitney Bowes, a provider of postal meters, jumped 21 percent, the most in the S&P 500, to $17.46 after agreeing to sell its management-services unit to Apollo Global Management LLC.

Consumer-discretionary stocks advanced 2 percent. Goodyear climbed 13 percent to $19.02 as the largest U.S. tiremaker reported quarterly net income that more than doubled from a year earlier.

LinkedIn Corp. gained 13 percent to $235.58 after posting second-quarter revenue that beat analysts’ estimates and membership of 238 million that more than doubled from mid-2011.

Facebook climbed 12 percent to $38.05, topping its $38 IPO price. The stock has surged 44 percent since the company said July 24 that mobile advertising revenue grew in the second quarter.

Dell Inc. increased 5.7 percent to $13.68 after Michael Dell and Silver Lake Management LLC agreed to increase their offer for the computer maker to $13.75 a share with a special dividend of 13 cents. Dell and Silver Lake had offered $13.65.

Oil Companies

Energy shares sank 0.3 percent as a group after Exxon and Chevron missed earnings estimates as demand and prices for crude oil fell. Brent crude futures, a global benchmark, averaged $103.35 a barrel during the second quarter, down 5 percent from $108.76 a year earlier.

Exxon, the world’s biggest energy company by market value, fell 3 percent to $91.95, the most in the Dow. Earnings trailed analyst estimates by the most in more than a decade. Chevron, the second-largest in the industry, fell 2.1 percent to $124.95 after reporting its biggest second-quarter profit decline in four years.

Coach Inc. tumbled 9.9 percent to $53.33 after saying second-quarter revenue fell at its established stores in North America and that the trend would continue as increasing competition hurts handbag sales.

Potash Prices

Visa Inc., the world’s biggest payment network, sank 4.8 percent to $184 after a judge ruled that the Fed had erred by inflating debit-card fees and restricting retailers’ choice of network.

Potash makers plunged after Uralkali, the world’s largest producer of the nutrient, upended the $20 billion-a-year commodity market by abandoning limits on output that underpinned prices while halting cooperation with Belarus that controlled supplies from the former Soviet Union.

Mosaic, the biggest U.S.-based maker of crop nutrients, fell 22 percent to $40.98. Potash Corp. slid 22 percent to $28.91.

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