U.S. Stocks Climb as Investors Look to Earnings, Oil Trims Slideby
Dow average closes above 18,000 for first time since July
Hasbro surges to record after earnings beat estimates
U.S. stocks advanced, with the Dow Jones Industrial Average closing above the 18,000 level for the first time since July, as investors shook off oil’s losses on failed output talks and looked toward a bevy of corporate earnings this week.
Hasbro Inc. surged 5.8 percent to a record, buoying sentiment after its results beat expectations thanks in part to demand for Walt Disney Co.’s “Star Wars”-licensed toys. Disney added 2.9 percent. Energy producers rallied as crude trimmed declines that had reached as much as 6.8 percent. Morgan Stanley was little changed as cost cuts helped the firm report a better-than-forecast profit. Netflix Inc. dropped after the market closed as it forecast weakening subscriber growth.
The Standard & Poor’s 500 Index rose 0.7 percent to 2,094.34 at 4 p.m. in New York, the highest since Dec. 1. The Dow rose 106.70 points, or 0.6 percent, to 18,004.16, a nine-month high. The Nasdaq Composite Index increased 0.4 percent. About 6.2 billion shares traded hands on U.S. exchanges, 24 percent below the three-month average.
“People are keying in on earnings and economic developments as well as oil,” said Stephen Carl, principal and head equity trader at Williams Capital Group LP. “We’re continuing higher and energy is kind of leading the charge. You also had some stocks earlier that went up on earnings, so when you start getting a group of earnings that are positive it’s going to steer the market. It’s been a steady move up for stocks since February.”
The S&P 500 has rebounded 14 percent since its February low, helped by a rise in oil prices and optimism central-bank policies will remain supportive of growth. The benchmark is trading at its highest level in four months after erasing 2016 losses of as much as 11 percent, and is less than 2 percent from a record reached last May.
The gains in equities have come even as earnings are forecast to slide at the steepest pace since the financial crisis, pushing the S&P 500’s price-earnings ratio to 19, near a six-year high. Moreover, should the Federal Reserve continue to gradually raise interest rates and the government refrain from adding stimulus, it would be the first time since 1952 that profits turned lower without a recession, Fed easing or fiscal expansion, data compiled by Bianco Research LLC show.
Netflix tumbled 10 percent as of 4:50 p.m. after rattling investors with forecasts for weakening subscriber growth in the second quarter, especially in newer markets outside the U.S. The subscriber slowdown overshadowed first-quarter results that mostly beat analysts’ estimates.
More than 90 companies are scheduled to report results this week, including Goldman Sachs Group Inc., Starbucks Corp. and American Express Co. Analysts are projecting a 9.5 percent decline in first-quarter profit, compared with forecasts for almost flat growth at the start of the year.
“With Morgan Stanley numbers better than feared it helps one of the bigger sectors, financials, gain some momentum,” said Yousef Abbasi, global market strategist at JonesTrading Institutional Services LLC in New York. “These large-cap banks are helping bolster the financial sector and it’s a bit of a positive.”
Releases later this week on housing, manufacturing and jobless claims will offer clues on the strength of U.S. growth and the outlook for the trajectory of rate increases. A report today showed confidence among homebuilders was little changed in April, indicating the housing market lacked momentum as the spring selling season got under way. Traders are pricing in zero chance of a rate increase at the Fed’s April meeting, with February now the first month with even odds of higher borrowing costs.
Fed Bank of New York President William Dudley on Monday reiterated recent comments from Chair Janet Yellen, saying policy adjustments will likely be gradual and cautious “as we continue to face significant uncertainties and the headwinds to growth from the financial crisis have not fully abated.” Still, Dudley described developments in the U.S. economy as “mostly favorable.”
The Chicago Board Options Exchange Volatility Index declined 2 percent Monday to 13.35, slipping for a fifth session, the longest streak since March 21. The measure of market turbulence known as the VIX fell 11 percent last week to hold near the lowest levels in eight months.
All of the S&P 500’s 10 main industries climbed Monday, with energy, consumer discretionary and health-care shares increasing at least 0.9 percent. Utilities and industrial companies lagged, rising 0.3 percent.
Energy shares rose as much as 1.7 percent after erasing a 1.6 percent drop, the biggest reversal in more than two months. Hess Corp. rallied 4.7 percent and ConocoPhillips gained 3 percent. West Texas Intermediate crude futures lost 1.4 percent.
Energy Transfer Equity LP surged 10 percent and Williams Cos., the pipeline giant it’s planning to buy, slid 5 percent after a filing showed that a tax opinion required for the deal to go through may not be delivered.
Drug developers rallied to lead the health-care group higher, with the Nasdaq Biotechnology Index rising 1.5 percent to advance for the fourth time in five days. Endo International Plc jumped 8.2 percent and Regeneron Pharmaceuticals Inc. added 3.9 percent to rank among the top gainers in the S&P 500.
Hasbro capped the biggest gain in nine months, leading the climb in consumer shares after its better-than-predicted results. Toys based on “Star Wars,” and Disney princesses fueled growth last quarter, the company said. Ford Motor Co. and General Motors Co. increased more than 2.4 percent, with Ford marking its strongest climb since March 3.
Software companies rose for a fourth session, the longest streak in a month to reach an all-time high. Microsoft Corp. and Visa Inc. added at least 1.4 percent, while PayPal Holdings Inc. gained 2.8 percent.
Apple Inc. weighed on the technology group amid its biggest two-day slide since January, after a report late last week that the company would extend an estimated 30 percent cut in iPhone production for another three months. NetApp Inc. sank 1.4 percent after Sterne Agee CRT downgraded the shares to the equivalent of sell from neutral, citing survey data indicating continued weakness in end-user budgeting for storage systems and upgrades.
Netflix was a drag on consumer discretionary companies, losing 2.8 percent during regular trading, the most in six weeks before reporting its quarterly results. Amazon.com Inc. introduced an $8.99 stand-alone video streaming service to further compete with Netflix, which had rallied 7.4 percent last week.