S&P 500 Advances Toward Best Annual Gain Since 2003

Speculation slower growth in hiring will extend Federal Reserve stimulus lifted U.S. stocks and pushed the annual advance in the Standard & Poor’s 500 Index within a percentage point of the best yearly gain in a decade.

The S&P 500 rose 0.6 percent to 1,754.67 at 4 p.m. in New York after closing at a record yesterday, bringing its increase since December to 23.0 percent. The gauge would have to reach 1,761 to surpass the 23.5 percent surge in 2009 and be poised for the largest annual rise since 2003, when it climbed 26.4 percent. American stocks have rallied amid $85 billion in monthly bond purchases by the Fed aimed at jumpstarting the economy and record earnings.

Unlike in 2003, when gains in the S&P 500 followed a 49 percent plunge after the bursting of the technology bubble, this year’s advance is building on strength. The benchmark gauge for American equities had already doubled from its 12-year low in March 2009 through the end of 2012. Almost $13 trillion has been restored to U.S. equity values during the 4 1/2-year bull market, data compiled by Bloomberg show.

The Dow Jones Industrial Average advanced 75.46 points, or 0.5 percent, to 15,467.66 today, the highest in a month. About 6.9 billion shares changed hands on U.S. exchanges, 17 percent higher than the three-month average.

Whirlpool Corp. climbed 12 percent after the world’s largest appliance maker lifted its forecast. Freeport-McMoRan Copper & Gold Inc. jumped 3.8 percent amid better-than-estimated earnings. Apple Inc. lost 0.3 percent, reversing an earlier gain of 1.4 percent and halting a nine-day rally. Netflix Inc. slipped 9.2 percent after Chief Executive Officer Reed Hastings attributed the stock’s rally to investor “euphoria.”

Jobs Report

The S&P 500 rallied as much as 0.8 percent today, boosted by speculation the Fed will delay curtailing its monetary stimulus after payrolls in the U.S. climbed by less than forecast in September, indicating the economy had little momentum leading up to the 16-day shutdown of the federal government. The jobless rate fell to an almost five-year low.

“This report indicates the Fed is joining us for the holiday season at the current level of quantitative easing,” Darrell Cronk, the New York-based regional chief investment officer at Wells Fargo Private Bank, which oversees $170 billion, said by phone. “And it will probably be ringing in the New Year with us as well as it continues QE through the end of 2013. Right now the data is not suggesting any kind of tapering.”

Shutdown Effects

Progress in the labor market depends on how quickly the world’s largest economy can bounce back from the loss of business caused by the government closure. The budget dispute weighed on fourth-quarter growth and will prompt Fed policy makers to wait until March before starting to scale back the $85 billion of monthly bond purchases, a Bloomberg survey showed last week.

A separate report showed construction spending in the U.S. rose in August for a fifth consecutive month, propelled by the strongest outlays on homebuilding in five years. Federal spending dropped to the lowest level in five years, showing government budget cuts will hold the industry back.

Investors are also watching corporate earnings to gauge the health of the economy. Analysts have raised their forecasts for profits in the third quarter, predicting an average increase of 2.5 percent for all companies in the gauge, according to estimates compiled by Bloomberg. That compares with a 1.7 percent projection at the beginning of the month.

Earnings Scorecard

Earnings at the 138 companies that have reported so far grew 5.5 percent, while sales gained 2.3 percent, according to data compiled by Bloomberg. Some 72 percent of the companies have topped analysts’ profit estimates, while 54 percent have beaten on sales.

“You’re getting a significant number of beats again and you’re seeing it widespread again,” Sandy Lincoln, the Chicago-based chief market strategist in the U.S. with BMO Global Asset Management, which oversees about $120 billion, said in a telephone interview. “I think those surprise factors continue to cause the market go higher.”

The S&P 500 will rise past 1,800 as earnings and the U.S. economy improve, Michael Shaoul, the chairman and chief executive officer of New York-based Marketfield Asset Management LLC, told Bloomberg TV.

“We feel pretty good about equities,” said Shaoul in an interview from New York. “Corporate earnings point to a re-accelerating domestic economy. 1,800 is attainable.” He did not specify a time frame.

Volatility Gauge

The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options known as the VIX, rose 1.3 percent to 13.33. The measure has fallen 20 percent this month.

Nine of 10 S&P 500 industry groups gained, with materials, consumer-staples and utility stocks increasing more than 1.3 percent to lead the advance. The Morgan Stanley Cyclical Index rallied 1.7 percent to a record.

Walt Disney Co., the world’s largest entertainment company, rose 2.1 percent, the most in the Dow, to a record $69. Alcoa Inc., the biggest U.S. aluminum producer, jumped 8.8 percent to $9.36 for the largest advance in two years.

An S&P index of homebuilders climbed 2.8 percent amid the rise in construction spending and a decline in Treasury 10-year note yields. All 11 members in the Supercomposite Homebuilding Index gained. Lennar Corp. advanced 4.2 percent to $36.17 while D.R. Horton Inc. rose 3 percent to $19.23.

Whirlpool climbed 12 percent to $146.19. The world’s largest appliance maker lifted its forecast for earnings this year to as much as $10.10 a share from an earlier estimate of no more than $10. That compared with the analyst estimate of $9.97.

Freeport-McMoRan jumped 3.8 percent to $36.36. The largest U.S. miner reported third-quarter profit that beat analysts’ estimates as copper costs were better than expected.

Airline Stocks

The Bloomberg U.S. Airlines Index advanced 2.2 percent to its highest level since October 2007. Delta Air Lines Inc. added 3.2 percent to a record $25.49. The carrier’s quarterly profit beat analysts’ estimates as more people flew at higher fares and fuel prices declined.

Transocean Ltd. jumped 6 percent to $49.35. The offshore drilling contractor will replace Dell Inc. in the S&P 500, the index provider said in a statement late yesterday. Revisions in the benchmark’s composition prompt some money managers to shift holdings to match the equity index.

VMware Inc. climbed 2.8 percent to $85. The biggest maker of software that lets computers run different operating systems reported quarterly profit that beat analysts’ forecasts.

Defense Contractors

Lockheed Martin Corp. added 3.8 percent to $130.05. The biggest U.S. government contractor raised its 2013 forecast as third-quarter profit jumped, defying Pentagon budget cuts.

The reduction in government spending weighed on United Technologies Corp., as the company trimmed its full-year sales projection. The stock dropped 1.4 percent to $106.13 for the biggest retreat in the Dow.

Apple lost 0.3 percent to $519.87, declining as much as 2.6 percent during the day after erasing an earlier gain. Chief Executive Officer Tim Cook, facing two straight quarters of declining profit and a stock that’s down by more than a quarter from a September 2012 record, updated the company’s lineup of iPads at an event today.

Netflix slid 9.2 percent to $322.52. Shares of the world’s largest online subscription-streaming service have more than tripled this year for the best performance in the S&P 500 as of yesterday. Netflix’s valuation is “difficult to justify,” Bank of America Corp. said in a note. The stock jumped as much as 9.6 percent earlier today, after profit beat analyst estimates.

Stiffer Competition

Coach Inc. slid 7.5 percent to $50.10, the lowest since April. The largest U.S. luxury handbag maker said fiscal first-quarter profit fell 1.6 percent as stiffer competition curtailed handbag sales in North America.

EMC Corp. slipped 4.8 percent to $24.04. The world’s biggest maker of storage computers cut its full-year sales and profit forecasts after earnings fell short of estimates after U.S. federal government spending declined.

Groupon Inc., a deal-of-the-day coupon company, tumbled 6.9 percent to $9.87. The slowdown in Groupon’s domestic business worsened last month from August, Steve Weinstein, an analyst with ITG Investment Research, wrote in a note to clients.

RadioShack Corp. tumbled 18 percent, the most since July 2012, to $2.89 as the consumer-electronics retailer posted a seventh straight quarterly loss. The company also said it received commitments for $835 million in new five-year financing to boost liquidity amid a turnaround effort.

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