S&P 500 Gains for Third Day on Earnings, Economic Data

U.S. stocks rose, with the Standard & Poor’s 500 Index capping its best three-day rally in two months, as Yahoo! Inc. earnings topped estimates and industrial production gained more than forecast.

Yahoo jumped 6.3 percent after sales surged at Alibaba Group Holding Ltd., where it holds a stake. Bank of America Corp. retreated 1.6 percent after reporting a quarterly loss. Google Inc. sank 5.7 percent in extended trading after the company reported sales that missed estimates. International Business Machines Corp. dropped 3.5 percent after the close as its sales fell an eighth straight quarter.

The S&P 500 added 1.1 percent to 1,862.31 at 4 p.m. in New York, bringing its three-day advance to 2.6 percent. The Dow Jones Industrial Average rose 162.29 points, or 1 percent, to 16,424.85. About 6 billion shares changed hands on U.S. exchanges, the slowest trading in one month.

“The macro data continues to come in reasonably firm and we don’t think valuations on the stock side suggest we’re overdone,” Jim Russell, a senior equity strategist at U.S. Bank Wealth Management, said by phone. “The market is finding some sort of natural trading level to bounce out of and we’re seeing slightly better-than-expected earnings and second-quarter outlooks from management that seem to be encouraging.”

The S&P 500 erased its loss for the year today. The gauge had dropped as much as 4 percent from its April 2 record as investors sold Internet and biotechnology stocks, the best performers during the five-year bull market, amid concern valuations had become too expensive before earnings.

Yellen Comments

Federal Reserve Chair Janet Yellen, speaking to the Economic Club of New York, told investors to pay attention to shortfalls in both inflation and the jobless rate for signals on the Federal Open Market Committee’s decisions on the policy rate. The Fed has a “continuing commitment” to support the economic recovery, she said.

The central bank said the U.S. economy continued to expand in most regions as businesses benefited from a bounce back from harsh winter weather earlier in the year. Eight of 12 Fed districts characterized growth as “modest or moderate,” the Fed said today in its Beige Book business survey, based on reports gathered before April 7.

Economic data today showed gains in manufacturing are helping power the U.S. out of the winter doldrums, while homebuilding shows signs of lagging behind. Industrial production rose more than forecast in March after a February gain that was twice as big as previously estimated. A Commerce Department report showed the pace of U.S. home construction rebounded less than forecast in March.

Earnings Report

Seventeen companies in the equities benchmark report earnings today. Profit per share for the index’s constituents probably dropped 0.9 percent in the first quarter, according to analyst estimates compiled by Bloomberg. Revenue climbed 2.6 percent from a year earlier, the projections show.

Russell Investments, the U.S. asset manager that oversees $257 billion, bought protection against a drop in equities shortly before last week’s selloff. The firm acquired puts on the S&P 500 last week’s 2.7 percent slide, Alain Zeitouni, head of multi-management at Russell Investments France said.

“Protection is cheap and we’re a bit cautious,” Zeitouni said in Paris on April 10. “We don’t see a big rally in equities in the U.S. We’ve been expecting a correction.”

The Chicago Board Options Exchange Volatility Index, a gauge for U.S. stock volatility known as the VIX, fell 9.2 percent to 14.18.

All 10 main S&P 500 industries advanced today, with raw-material producers and industrial companies each adding 1.5 percent to pace gains. 3M Co. and United Technologies Corp. jumped at least 1.9 percent among the biggest gains in the Dow.

Yahoo Results

Yahoo rallied 6.3 percent to $36.35. The Web portal posted first-quarter earnings of 38 cents a share, more than the 37-cent average estimate of analysts. Sales excluding some items of $1.09 billion also beat projections. Alibaba reported that net income more than doubled in the last quarter of 2013 and revenue surged 66 percent. Yahoo owns 24 percent of the Chinese e-commerce company.

Southwest Airlines Co. advanced 2.8 percent to $23.54. The largest discount carrier will freeze the size of its jet fleet through 2015, a year longer than Chief Executive Officer Gary Kelly’s stated goal of holding the number of planes -- now about 680 --steady through 2014.

Delta Air Lines Inc. climbed 5.4 percent to $33.62.

Johnson Controls Inc. rose 1.7 percent to $46.73. The largest U.S. auto-parts maker agreed to buy Air Distribution Technologies for $1.6 billion, seeking to lessen its reliance on the cyclical auto industry by adding ventilation products by purchasing Air Distribution Technologies from the Canada Pension Plan Investment Board.

Moelis Debut

Moelis & Co. climbed 4.6 percent to $26.15 in its trading debut after raising less than it planned in the first U.S. initial public offering of an investment bank since the financial crisis.

Bank of America declined 1.6 percent to $16.13. The second-largest U.S. lender swung to a quarterly loss after settling claims on mortgage bonds. The first-quarter loss of $276 million compared with a profit of $1.48 billion a year earlier, the lender said.

The Philadelphia Semiconductor Index fell 0.2 percent and a gauge of semiconductors dropped the second-most among 24 S&P 500 groups. Linear Technology Corp. slipped 4.4 percent to $45.07 for the biggest retreat in the equities benchmark. Analog Devices Inc. lost 1.9 percent to $52.15 and NetApp Inc. dropped 2 percent to $36.24.

Google, IBM

CSX Corp. declined 1.8 percent to $27.79. The largest railroad in the eastern U.S. said it expects “modest” earnings growth for 2014 and it’s unclear if 2015 will be “strong enough” to deliver a two-year compound annual growth rate of 10 percent to 15 percent.

Google’s Class C shares sank 5.7 percent to $524.79 in after-hours trading. The operator of the largest Internet search engine said sales fell short of estimates as advertising prices declined. The stock closed the regular session 3.8 percent higher at $556.54.

IBM lost 3.5 percent to $189.50. Revenue fell 3.9 percent from a year earlier to $22.5 billion in the first quarter as sales continued to tumble in its hardware unit and in developing countries, IBM said today in a statement. That compared with analysts’ average estimate of $22.9 billion. The stock closed today 0.3 percent lower at $196.40.

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