S&P 500 Advances Amid Mixed Earnings as Commodity Shares Rally

  • Energy, raw-material companies surge as the dollar slides
  • Disappointment with IBM results drags tech shares lower

Is the Link Between Stocks and Oil Loosening?

The Standard & Poor’s 500 Index rose Tuesday, extending a four-month high as commodity producers rallied in a seesaw session amid mixed results in corporate earnings.

Raw-material companies surged to the highest in nine months, while energy shares jumped on crude’s first gain in five days. Johnson & Johnson, Goldman Sachs Group Inc. and UnitedHealth Group Inc. advanced at least 1.5 percent amid better-than-estimated earnings, countering Netflix Inc.’s biggest drop since 2014 and the steepest slide for International Business Machines Corp. since October as results disappointed. Illumina Inc. plunged 23 percent after the gene-sequencing company’s revenue missed predictions.

The S&P 500 gained 0.3 percent to 2,100.80 at 4 p.m. in New York, closing above the 2,100 mark for the first time since Dec. 1. The Dow Jones Industrial Average added 49.44 points, or 0.3 percent, to 18,053.60, extending a nine-month high. The Nasdaq Composite Index slid 0.4 percent under the drag from Netflix and Illumina. About 7.1 billion shares traded hands on U.S. exchanges, 12 percent below the three-month average.

“The recession talk from February is off the table and we’re also seeing stability in China which is helping global commodities in general,” said Mark Kepner, an equity trader at Themis Trading LLC in Chatham, New Jersey, in a phone interview. “‘I would’ve never thought I’d come into work with Netflix and IBM down and the S&P 500 up, but the momentum just keeps building.”

Equities surged in morning trading with the Dow rising nearly 100 points and then lost momentum at midday as declines in IBM and Netflix reached their worst levels. Both the S&P 500 and Dow briefly erased a climb before regaining their footing in the afternoon as commodity producers and banks added to their gains.

The S&P 500 has rebounded 14 percent since its February low, helped by a rebound in oil prices, signs of stabilization in China’s slowdown and optimism central-bank policies will remain supportive of growth. After erasing 2016 losses, the benchmark is less than 1.5 percent from a record reached last May. The Russell 2000 on Monday erased its loss for the year, wiping out a drop of as much as 16 percent.

While investors’ reaction to corporate earnings has been mostly positive so far, they aren’t shy about punishing companies that don’t deliver. Netflix tumbled 13 percent after its forecast indicated weakening subscriber growth in the second quarter. IBM retreated 5.6 percent as its second-quarter profit estimate was short of projections. Philip Morris International Inc. lost 1.3 percent after its earnings fell short of estimates.

Analysts project first-quarter profits for companies in the benchmark equity index shrank 9.5 percent. With only about 10 percent of S&P 500 members having reported, 58 percent have exceeded revenue forecasts while 78 percent have beaten earnings predictions.

Along with companies’ quarterly results, policy makers and investors are scrutinizing data to discern the strength of U.S. growth and the outlook for interest rates. A report today showed new-home construction slumped more than projected in March. Permits, a proxy for future construction, also dropped. Traders are pricing in zero chance the Federal Reserve will raise rates at its meeting next week, while the first month with at least even odds for a boost is December.

Fed Bank of Boston President Eric Rosengren said in a speech Monday the market’s outlook for rates is too dovish, implying a path for increases that “would likely result in an overheating that necessitates the Fed eventually raising interest rates more quickly than is desirable,” jeopardizing growth.

Among the S&P 500’s 10 main industries, raw-materials and energy shares were the strongest performers today, rising at least 1.8 percent. Financials climbed 1.1 percent, boosted by banks. Technology companies lost 0.6 percent under IBM’s drag. The Chicago Board Options Exchange Volatility Index slipped 0.8 percent to 13.24, with the gauge of market turbulence known as the VIX hovering near an eight-month low.

Raw-material companies jumped the most in a month as the dollar sank to the lowest since June, boosting the value of commodities priced in the currency. Copper miner Freeport-McMoRan Inc. rallied 9 percent to a five-month high, and Newmont Mining Corp. added 4.9 percent as gold climbed. Fertilizer maker Mosaic Co. increased 6.5 percent, its strongest since February.

In energy, Transocean Ltd. surged 9.5 percent, the most in more than six weeks, and Diamond Offshore Drilling Inc. gained 6.3 percent to lead the rally. Chevron Corp. added 1.8 percent to reach a 10-month high. West Texas Intermediate crude futures increased 3.3 percent to top $41 a barrel.

Banks in the benchmark climbed for the seventh time in eight days, rising to a three-month high. Comerica Inc. jumped 4.2 percent, to the highest this year even as its earnings missed estimates and its outlook was little changed. Wells Fargo & Co. and Bank of America Corp. increased more than 1.9 percent.

The tech group posted the biggest retreat since April 7, when the Nasdaq 100 Index lost 1.5 percent. IBM capped the steepest slide since October, and EBay Inc. dropped 4 percent after Morgan Stanley cut its rating and target price on the shares. Qorvo Inc. and Skyworks Solutions Inc. fell at least 3.3 percent after downgrades from Raymond James & Associates Inc.

Viacom Inc. was the third-biggest loser in the S&P 500, contributing with Netflix to the decline in consumer discretionary shares. The media company dropped 8.3 percent, the most in two months as a fee dispute with Dish Network Inc. escalated. Amazon.com Inc. fell 1.2 percent, snapping a seven-day winning streak that was the longest in 20 months.

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