U.S. Stocks Have Best Week of 2014 on Yellen, Earnings

U.S. stocks rallied the most for a week since December as comments from Federal Reserve Chair Janet Yellen reassured investors about the strength of the economy and corporate earnings exceeded estimates.

Goodyear Tire & Rubber Co., Cliffs Natural Resources Inc. and CBS Corp. rallied at least 7.4 percent amid better-than-forecast results. Applied Materials Inc. jumped 10 percent after predicting rising sales. Time Warner Cable Inc. climbed 7.9 percent after Comcast Corp. agreed to buy it for $45.2 billion. Apple Inc. gained 4.7 percent as Carl Icahn backed away from his push to increase share repurchases at the iPhone maker.

The Standard & Poor’s 500 Index advanced 2.3 percent to 1,838.63 over the five days, posting its first back-to-back weekly gains for the year and finishing within 10 points of its all-time high. The Dow Jones Industrial Average increased 360.31 points, or 2.3 percent, to 16,154.39. Both gauges completed their best week since Dec. 20.

“Earnings have come in fine and we’re seeing some activity in mergers and acquisitions,” John Carey, a fund manager at Pioneer Investment Management Inc., a Boston-based firm that manages about $220 billion worldwide, said by phone. “There are still some things inspiring people that stocks are the place to be this year.”

Equities rose for the week as Yellen delivered her first public remarks as Fed chair and pledged to maintain her predecessor’s policies by scaling back stimulus in “measured steps.” Economic growth has strengthened and there is “broad improvement” in the labor market, she said, adding that only a “notable change in the outlook” for the economy would prompt the central bank to slow the pace of tapering.

Weather Impact

Data over the week added to evidence that severe winter weather weighed on the economy. Retail sales unexpectedly fell in January as inclement weather kept customers from auto showrooms and stores while factory production declined by the most since May 2009.

“The comfort came to the market when Janet Yellen said there is not going to be any change in policies,” Omar Aguilar, the San Francisco-based chief investment officer of equities at Charles Schwab Investment Management, said in a phone interview. The firm had $241 billion in assets under management as of Dec. 31. That shows “the Fed is confident that the economy can sustain any potential issues in global growth,” he said.

Investors have dismissed weaker-than-forecast economic data including January’s payrolls over the past two weeks, helping stocks recover from their worst start of a year since 2010. The S&P 500 had slumped as much as 5.8 percent since reaching a record 1,848.38 on Jan. 15 as concern over Fed tapering fueled an exodus in emerging markets. The index has since climbed 5.6 percent, paring its 2014 loss to 0.5 percent.

Fighting Back

“We seem to be fighting our way back toward those levels near 1,850 on the S&P 500,” John Augustine, chief market strategist at Cincinnati-based Fifth Third Bancorp, said in a phone interview. His firm oversees $27 billion. “Those levels may be in play until we get a rebound in the economy and earnings.”

Of the 400 companies in the S&P 500 that have reported earnings so far, 75 percent beat analysts’ profit estimates while 64 percent exceeded on sales, data compiled by Bloomberg show. Wal-Mart Stores Inc. and Hewlett-Packard Co. are among more than 40 companies in the S&P 500 scheduled to announce financial results in the coming week.

The Chicago Board Options Exchange Volatility Index dropped 11 percent over the week to 13.57. The gauge of S&P 500 options known as the VIX is down 1.1 percent this year.

Industry Returns

All 10 S&P 500 groups rose at least 1.6 percent for the week. Utility, health-care and raw-materials producers rallied more than 3 percent to lead the gains.

Goodyear Tire soared 14 percent, the most in the S&P 500, to $26.76. The tire manufacturer reported adjusted fourth-quarter earnings higher than analysts’ estimates and reaffirmed its financial targets for 2014 through 2016.

Cliffs Natural climbed 11 percent to $23.16. The iron-ore miner’s profits topped forecasts after it cut operating costs. The stock rose earlier in the week after saying it will idle a Canadian mine and reduce spending at a second operation in the country. Casablanca Capital LP, the company’s fourth-largest shareholder, has pressed Cliffs to spin off foreign assets and double its dividend.

Cable Deal

CBS jumped 7.4 percent to a record $64.96. Programming deals helped the owner of the most-watched television network beat profit estimates. The company expanded its stock-buyback plan by $1.5 billion.

Time Warner Cable climbed 7.9 percent to $146, the highest level ever. The surprise deal combines the two largest U.S. cable companies and creates a bulwark against competition from phone and satellite providers. Comcast slipped 1.7 percent to $53.70.

Applied Materials advanced 10 percent to $18.96. The largest supplier of semiconductor-manufacturing equipment forecast fiscal second-quarter sales growth of as much as 10 percent as memory chipmakers boost spending on factory upgrades.

Apple gained 4.7 percent to $543.99. Activist investor Icahn dropped his campaign urging the company to buy back $50 billion of stock this year, after Apple stepped up repurchases and a proxy-advisory firm criticized his efforts as micromanagement.

Sprint, TripAdvisor

Sprint Corp. rose 4.7 percent to $8.40. The third-largest U.S. wireless carrier reported a narrower loss and better-than-predicted sales after the company shed fewer subscribers than analysts had projected.

TripAdvisor Inc. jumped 8.1 percent to $91.25. The online trip booking service reported fourth-quarter revenue of $212.7 million, topping analysts’ estimates of $205.6 million.

Nvidia Corp. rose 13 percent to $17.91. The maker of graphics processors forecast first-quarter sales that may exceed some analysts’ predictions as demand for cards used in high-end gaming computers helps make up for a drop in laptops.

Occidental Petroleum Corp. added 5.7 percent to $95.76. The largest oil producer in the continental U.S. said it will split its operations in California into a separate publicly traded company in one of the final steps of a breakup plan.

ConAgra Foods Inc. dropped 4.8 percent to $29.36 after cutting its year-end profit forecast, reflecting a longer time frame to restore its private brands segment to planned levels of operating profit, as well as weaker-than-anticipated volumes in consumer foods.

LinkedIn Corp. tumbled 11 percent to $186.13. The professional-networking site has plummeted 17 percent since Feb. 6, when LinkedIn forecast first-quarter sales that fell short of analysts’ estimates as growth slows in all three of its businesses.

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