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U.S. Stocks Rise as Citigroup Overshadows Retail Sales

By Alex Barinka and Nikolaj Gammeltoft
July 15, 2013 4:55 PM EDT 23 Comments
A pedestrian walks past the New York Stock Exchange.
Photographer: Scott Eells/Bloomberg
A pedestrian walks past the New York Stock Exchange.

U.S. stocks rose, giving the Standard & Poor’s 500 Index its longest winning streak since January, as better-than-estimated earnings at Citigroup Inc. (C) overshadowed a disappointing retail sales report.

Citigroup jumped 2 percent after profit beat analysts’ estimates as stock-trading revenue surged and losses on unwanted assets declined. Leap Wireless International Inc. more than doubled after AT&T Inc. agreed to buy the company for $1.2 billion. Boeing Co. climbed 3.7 percent as a U.K. agency said last week’s fire on a 787 aircraft is unrelated to battery blazes that grounded the fleet earlier this year.

The S&P 500 (SPX) climbed 0.1 percent to 1,682.50 at 4 p.m. in New York. The index has gained for eight straight days, the longest stretch since Jan. 25. The Dow Jones Industrial Average added 19.96 points, or 0.1 percent, to 15,484.26. Both gauges reached record closing highs. About 4.9 billion shares traded hands on U.S. exchanges today, 25 percent below the three-month average and the lowest level of the year for a full-day session.

“We have our focus on earnings,” James Gaul, a portfolio manager at Boston Advisors LLC, which oversees about $2.6 billion in assets, said by phone. “Citigroup had a good report this morning and the question is whether earnings will be strong enough to push us higher. That’s where the short-term focus will be.”

The S&P 500 closed at a record last week after Federal Reserve Chairman Ben S. Bernanke backed sustained monetary stimulus. The gauge added 3 percent through the five days, for a third week of gains and its biggest rally since Jan. 4.

Stimulus, Earnings

An unprecedented three rounds of central bank stimulus have helped drive the S&P 500 (SPX) up 149 percent from a 12-year low in 2009. The index slumped as much as 5.8 percent after Bernanke signaled on May 22 that the Fed could start scaling back bond purchases as soon as September. Stocks have since recovered all those losses as data on hiring and housing bolstered confidence in the economic recovery.

Profit at companies listed on the S&P 500 rose 2 percent last quarter, down from a projection of 8.7 percent six months ago, according to analyst estimates compiled by Bloomberg.

“Many companies are lowering expectations before we get into the quarter on the hope that they beat them,” Michael Mullaney, chief investment officer for Fiduciary Trust Co. in Boston, said by telephone. His firm manages $9.5 billion. “We don’t know how much longer companies can get blood from the stone.”

Retail sales rose less than projected in June. The 0.4 percent gain followed a 0.5 percent increase in May that was less than previously reported, Commerce Department figures showed today. The median forecast of 82 economists surveyed by Bloomberg called for a 0.8 percent advance. Another report showed manufacturing in the New York region expanded in July at the fastest pace in five months as the area’s factory activity stabilized amid a slowdown in growth.

China GDP

China’s gross domestic product rose 7.5 percent in the April-to-June quarter from a year earlier, according to the National Bureau of Statistics in Beijing. That equaled the median forecast in a Bloomberg News survey. The economy expanded at a 7.7 percent pace in the first quarter.

“The Chinese GDP data reassured investors that China will not derail the global growth recovery,” Stephane Ekolo, chief European strategist at Market Securities, wrote in an e-mail.

Citigroup rose 2 percent to $51.81. The third-biggest U.S. bank by assets posted adjusted earnings of $1.25 a share for the second quarter, beating the $1.18 average estimate of 27 analysts surveyed by Bloomberg News.

Cut Costs

Chief Executive Officer Michael Corbat, 53, has fired thousands of workers and scaled back operations in some countries to cut costs since replacing Vikram Pandit, 56, in October. Citi Holdings, the unit created in 2009 as a home for the company’s unwanted assets after the financial crisis, posted its smallest loss ever.

Financial companies in the S&P 500 rose 0.4 percent as a group, while the KBW Bank Index added 0.6 percent to its highest level since October 2008.

Leap Wireless surged 112 percent to $16.95. AT&T, the second-biggest U.S. wireless carrier, lost 0.7 percent to $35.55. The deal adds pressure on smaller competitors such as Sprint Corp. and Dish Network Corp. to bulk up through mergers and acquisitions of their own.

Sprint rallied 4.2 percent to $6.72 and Dish jumped 3.1 percent to $44.45.

Smaller regional companies such as U.S. Cellular Corp. or NTelos Holdings Corp. also may become takeover bait, said Chetan Sharma, a wireless-industry analyst in Issaquah, Washington. U.S. Cellular soared 8.3 percent to $38.77 and NTelos gained 6.1 percent to $17.81.

Boeing Rebounds

Boeing gained the most in the Dow, climbing 3.7 percent to $105.66 after the stock had its biggest drop in two years on July 12. U.K. regulators are still seeking the cause of last week’s fire on a Boeing Co. 787 parked at London’s Heathrow airport after saying they see no direct link to battery blazes that grounded the fleet earlier this year.

Tiffany & Co., the world’s second-largest jewelry retailer, added 3.6 percent to $79.78. Stifel Financial Corp. upgraded its recommendation on the shares to buy from hold, with a price target of $92.

Monster Beverage Corp. rose 1.6 percent to $60.80. Stifel said the maker of energy drinks is likely to beat second-quarter earnings estimates and raised the price target to $70 from $62.

All 11 members of an S&P index of homebuilders fell as the gauge slumped 3 percent. D.R. Horton Inc. dropped 4.6 percent to $21.72. PulteGroup Inc. sank 3.4 percent to $19.54. Lennar Corp. declined 4.1 percent to $35.55.

Volatility Gauge

Wagers that U.S. stock volatility will decline have reached their highest level in almost two years as the Fed pledges to preserve stimulus and data from jobs to home sales show economic growth.

Put trading on the Chicago Board Options Exchange Volatility Index exceeded calls by 73 percent on July 11, the most since October 2011, according to data compiled by Bloomberg. The VIX (VIX), a gauge of S&P 500 option prices, dropped 0.4 percent to 13.79 today, extending its declines to an eighth day, the longest streak of consecutive losses in 21 months. The gauge is down 23 percent for the year.

“The government stands as a backstop to the marketplace, so there is no real fear about the downside,” Alan Salzbank, who helps oversee about $620 million in options and stocks as a managing partner at Gargoyle Asset Management LLC in Englewood, New Jersey, said by phone on July 12. “The VIX at this point is really in a tough spot, because when the government can’t control things any longer, the VIX will explode. But in the meantime, they’re keeping it bottled up by continuing with QE.”

To contact the reporters on this story: Alex Barinka in New York at abarinka2@bloomberg.net; Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net

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