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U.S. Stocks Rise on Earnings as Consumer Confidence Gains

By Lu Wang and Whitney Kisling
January 28, 2014 4:40 PM EST 31 Comments
Traders work on the floor of the New York Stock Exchange in New York.
Photographer: Jin Lee/Bloomberg
Traders work on the floor of the New York Stock Exchange in New York.

U.S. stocks rose, with the Standard & Poor’s 500 Index rebounding from its worst slump since June, as earnings at companies from Pfizer Inc. to D.R. Horton Inc. topped estimates and consumer confidence increased ahead of a Federal Reserve policy meeting.

Pfizer, the world’s biggest drugmaker, advanced 2.6 percent after earnings beat estimates as it cut costs and saw its tax rate fall. An index of homebuilders surged 5.3 percent as D.R. Horton jumped 9.8 percent and a report showed home prices climbed. American International Group Inc. rose 2.5 percent after Bank of America Corp. said it expects the insurer to buy back $10 billion of stock during the next two years. Apple Inc. tumbled 8 percent as iPhone sales trailed estimates.

The S&P 500 (SPX) rose 0.6 percent to 1,792.50 at 4 p.m. in New York. The Dow Jones Industrial Average climbed 90.68 points, or 0.6 percent, to 15,928.56. About 6.6 billion shares changed hands on U.S. exchanges, 6.8 percent more than the three-month average.

“Earnings looked pretty good,” Dan Veru, the chief investment officer who helps oversee $4.5 billion at Palisade Capital Management LLC, said by phone from Fort Lee, New Jersey. “The economy is in the process of being self-reinforcing and it can handle the modest amount of tapering we’re planning to do.”

U.S. equities joined a global rebound as European shares recovered from their biggest three-day decline in seven months while the MSCI Emerging Markets Index rose from its lowest level since August.

Three-Day Drop

The S&P 500 lost 3.4 percent in the past three days, the most since June, with emerging-market currencies sinking amid signs China’s economy is slowing. The benchmark gauge rallied 30 percent last year and is up 165 percent from a bear-market low in 2009.

Some 83 S&P 500 stocks had their 14-day relative-strength index below 30 yesterday, the most since November 2012, data compiled by Bloomberg show. RSI measures the degree to which gains and losses outpace each other, and some analysts who watch charts to predict market moves consider a reading lower than 30 as indicating the stock has fallen too far too fast.

“The ride probably will not be as smooth as we have seen in the last couple years,” Mark Luschini, chief investment strategist at Janney Montgomery Scott LLC, which oversees $63 billion, said in phone interview from Philadelphia. “We’ve had a pretty decent pullback here in equity prices.”

Fed Meeting

The Federal Open Market Committee started its last meeting under Chairman Ben S. Bernanke today. Policy makers said in December that the central bank would begin to pare the pace of its monthly bond buying by $10 billion to $75 billion this month. The Fed will cut purchases by $10 billion at each of the next six FOMC meetings, with the program ending no later than December, according to economists in a Bloomberg News survey conducted Jan. 10.

The Conference Board’s index of consumer confidence rose to 80.7 in January from a revised 77.5 in the prior month, the New York-based private research group said today. The median forecast in a Bloomberg survey of economists called for a reading of 78.

Stock futures briefly erased early gains as a report showed orders for durable goods unexpectedly slumped in December by the most in five months, reflecting a broad-based retreat that raises the risk business investment will cool in early 2014.

Earnings Season

AT&T Inc. and Yahoo! Inc. are among S&P 500 companies reporting quarterly results today. Almost 74 percent of the 152 companies that have posted earnings this season beat analysts’ projections. Profit at S&P 500 companies probably rose 6.6 percent in the fourth quarter of 2013, and sales increased 2.3 percent, analysts’ estimates compiled by Bloomberg show.

The Chicago Board Options Exchange Volatility Index retreated for a second day, sliding 9.3 percent to 15.80. The gauge of S&P 500 options known as the VIX surged 46 percent last week, its biggest gain since May 2010.

Nine out of 10 main industries in the S&P 500 advanced, with financial and health-care stocks rising more than 1.2 percent for the biggest gains.

Pfizer advanced 2.6 percent to $30.42 after posting quarterly profit of 56 cents a share excluding some items. The average analyst estimate was for 52 cents.

An S&P index of homebuilders rallied 5.3 percent, the most since September. Home prices in 20 U.S. cities rose 13.7 percent in November from a year ago, the S&P/Case-Shiller index showed, the biggest 12-month gain since February 2006.

D.R. Horton climbed 9.8 percent, the most in the S&P 500, to $23. The largest U.S. homebuilder by revenue posted earnings that beat analyst estimates as the Fort Worth, Texas-based company raised prices and delivered more homes.

Financial Shares

AIG and T. Rowe Price Group Inc. led gains among financial shares. AIG rose 2.5 percent to $48.46 after Bank of America named the stock the top pick among property and casualty insurers for 2014. T. Rowe Price climbed 5.5 percent to $80.70 after the money manager reported fourth-quarter profit that exceeded analysts’ estimates.

Comcast Corp. (CMCSA) increased 1.6 percent to $53.35 after people familiar with the matter said the cable company is near a deal to buy assets from Charter Communications Inc. Comcast also reported a 26 percent increase in fourth-quarter profit after adding TV subscribers for the first time in more than six years.

Cliffs Natural Resources Inc., the biggest U.S. iron ore producer, advanced 2.1 percent to $19.81. Casablanca (CLF) Capital LP, which owns 5.2 percent of Cliffs, said the company’s valuation would rise to $53 if Cliffs spun off foreign assets, doubled its dividend and converted U.S. assets to a master limited partnership to “significantly cut costs.”

Oshkosh, Apple

Oshkosh (OSK) Corp., which designs and manufactures specialty trucks and other vehicles, rallied 8 percent to $55.50. The company said replacement demand and earlier orders may indicate a stronger recovery. The company boosted its 2014 earnings forecast to at least $3.40 a share, higher than the average analyst estimate of $3.35, according to data compiled by Bloomberg.

Technology shares sank 0.7 percent for the only loss among 10 S&P 500 groups. Apple slid 8 percent to $506.50, the lowest since October, after reporting that it sold 51 million iPhones in the quarter ended Dec. 28, missing analysts’ estimates for 54.7 million handsets. Apple also projected revenue in the current period may shrink from a year earlier, in what would be the first quarterly sales decline since 2003.

Adding Pressure

Stagnating growth is adding pressure for the company to release new hit products, be it a television, wearable computer or a way to pay for things with an iPhone. Billionaire activist investor Carl Icahn is betting Apple will deliver, disclosing on Twitter today that he bought another $500 million of Apple shares on top of the $3.6 billion he had as of last week.

Yahoo! Inc. dropped 2.9 percent to $37.10 as of 4:39 p.m. in New York. The company forecast after the close of regular trading first-quarter sales that fell short of some analysts’ estimates as Chief Executive Officer Marissa Mayer struggles to turn user growth at the Web portal into advertising dollars.

Seagate Technology Plc dropped 11 percent to $51.52 in regular trading. It reported second-quarter earnings of $1.32 a share excluding some items, missing the average analyst estimate of $1.39. The maker of disk drives posted sales of $3.53 billion, falling short of the projected $3.56 billion.

Corning Inc. tumbled 6.2 percent to $17.10 after projecting price declines for LCD, the display technology used in televisions and computer monitors.

To contact the reporters on this story: Lu Wang in New York at lwang8@bloomberg.net; Whitney Kisling in New York at wkisling@bloomberg.net

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

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