S&P 500 Has Longest Weekly Gain Since July Amid Earnings

U.S. stocks rose for a fourth week, the longest rally since July, as better-than-estimated corporate earnings offset concern the Federal Reserve may reduce monetary stimulus in coming months.

General Motors Co. jumped 5.1 percent as profit beat analysts’ estimates. Expedia Inc. surged 19 percent as the online travel agency’s third-quarter earnings exceeded forecasts. American International Group Inc. slumped 6.9 percent after reporting an underwriting loss at its property-casualty unit and saying it may miss some of its 2015 targets. Merck & Co. slipped 2.8 percent after the second-biggest U.S. drugmaker narrowed its full-year forecast.

The S&P 500 increased 0.1 percent to 1,761.64 over the five days, extending a 4.1 percent advance over the previous three weeks. The Dow Jones Industrial Average added 45.27 points, or 0.3 percent, to 15,615.55. U.S. equities finished the first 10 months of the year with the S&P 500 jumping 23 percent, the best January-to-October performance since 1997. Both indexes reached record highs on Oct. 29.

“We’re still seeing good earnings numbers coming out of companies and that continues to supply a bid for stocks,” Bill Schultz, chief investment officer who oversees about $1.1 billion at McQueen Ball & Associates in Bethlehem, Pennsylvania, said by phone. “The impetus going forward as we look at the market - is it too expensive or too inexpensive? It’s probably somewhere in the middle. So there is not a lot of reason to be selling, but there is not a lot of reason to be aggressively buying at this point.”

Stimulus Speculation

The Fed announced on Oct. 30 it would press on with $85 billion in monthly bond purchases, saying it needs to see more evidence that the economy will continue to improve. Equities retreated for two days as the central bank also said there were signs of “underlying strength” in the economy, raising speculation the Fed may begin to slow the pace of stimulus in coming months.

Economists in a Bloomberg survey project that tapering will begin in March, based on the median estimate. Fed Chairman Ben S. Bernanke is pushing unprecedented accommodation into the final months of his Fed chairmanship as he seeks to shield the four-year economic expansion from the impact of higher borrowing costs and October’s partial U.S. government shutdown.

Economic data were mixed during the week, with consumer confidence and sales of previously owned homes dropping more than forecast while manufacturing grew at a faster pace than projected.

‘No Guidepost’

“There could be a sense that if investors do believe we’re in the later innings of stimulus, good news could be perceived as bad news because maybe it accelerates the time the Fed ultimately takes its foot off the accelerator,” Jack Ablin, who helps oversee $66 billion as chief investment officer at BMO Private Bank, said by phone from Chicago. “Given that there are no guideposts, I don’t expect a lot of direction to the market.”

Two of America’s best known investors are moving in opposite directions in the stock market, with Laszlo Birinyi predicting more gains as David Einhorn takes a more cautious approach.

Holdings that profit if stocks gain at Einhorn’s Greenlight Capital Re Ltd.’s exceeded short bets by 35 percentage points as of Sept. 30, compared with about 42 percentage points three months earlier, he said on an Oct. 31 conference call. Birinyi, president of Birinyi Associates Inc., said the S&P 500 will reach 1,820 by February and bought calls that profit from a rally in the equity benchmark.

Equity Valuation

Central bank stimulus has helped the S&P 500 surge more than 160 percent from its bear-market low in 2009. The benchmark gauge is up 24 percent this year, poised for the best annual gain since 2003. The rally pushed the S&P 500’s estimated price-to-earnings ratio to 15.9, the highest valuation in almost four years, data compiled by Bloomberg show.

“The market is clearly motivated by the Fed action,” Uri Landesman, president of New York-based hedge fund Platinum Partners, who helps manage about $1.3 billion, said by phone. “Rather than focusing on the fact that the market eventually has to stand on its own legs, the market is focusing on the fact that the Fed is still pumping liquidity.”

The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options prices known as the VIX, added 1.5 percent to 13.28. The measure is down 26 percent this year.

Six out of 10 S&P 500 main industries advanced. Telephone and consumer-staples companies climbed more than 1.1 percent to lead the gain.

GM, Expedia

GM and AIG were among 126 companies that announced results for the week. Of the 369 companies that have reported this season, 75 percent exceeded analysts’ predictions for profit, while 53 percent beat sales estimates, data compiled by Bloomberg showed. Profits for members of the gauge probably increased 4.1 percent in the third quarter as sales climbed 2.9 percent, according to analysts’ estimates compiled by Bloomberg.

GM climbed 5.1 percent to $37.39. The largest U.S. automaker reported a profit that beat estimates as demand for redesigned pickups and other models in North America made up for losses in Europe and in Asia outside of China. The company’s sales of cars and light trucks rose 16 percent last month, topping analysts’ average estimate for a gain of 7.9 percent.

Expedia jumped 19 percent, the most since April 2012, to $60.11. The company said profit was helped by more people using the service to book hotel rooms and an increase in media and advertising revenue.

Xylem Inc., the water company whose pumps helped clean tunnels in New York flooded by Hurricane Sandy, surged 15 percent to $33.22 after the company raised its earnings forecast. The weekly gain was the biggest since the company was spun off from ITT Corp. in October 2011.

Laying Groundwork

AT&T Inc. rallied 3 percent to $36.24. Executives at the largest U.S. phone company are laying the groundwork internally for a potential takeover of Vodafone Group Plc next year, mapping out a strategy for a complex deal with Europe’s largest mobile carrier, people familiar with the situation said.

Bristol-Myers Squibb Co. rose 7.6 percent to $52.48 after releasing trial results that showed its experimental drugs for lung cancer and rheumatoid arthritis helped patients.

AIG slumped 6.9 percent to $48.28. The insurer’s property-casualty division, its largest, reported a third-quarter decline in sales. Chief Executive Officer Robert Benmosche said he would stop providing specifics on progress toward the company’s so-called aspirational goals, such as a target of 10 percent return on equity for 2015.

Merck slipped 2.8 percent to $45.23 for the biggest retreat in the Dow. The second-biggest U.S. drugmaker said profit for 2013 will be $3.48 to $3.52 a share as the company continues an overhaul of its sales and research operations. The previous outlook was for $3.45 to $3.55.

Avon Products Inc. plunged 17 percent, the most since October 2011, to $18.27. The world’s largest door-to-door cosmetics seller posted a third-quarter net loss and said possible fines related to foreign bribery probes may materially hurt earnings.

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