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U.S. Stocks Rise as Technology Shares Rally With Apple

By Joseph Ciolli and Callie Bost
April 24, 2014 4:36 PM EDT 21 Comments

U.S. stocks rose, with the Standard & Poor’s 500 Index trading near a record, as technology companies rallied after Apple Inc. results topped estimates to offset a slump in phone shares.

Apple jumped 8.2 percent, the most in two years, after selling more iPhones than analysts predicted. Verizon Communications Inc. led declines in the Dow Jones Industrial Average, and AT&T Inc. sank a second day, amid concerns that price competition is shifting wireless revenue. Qualcomm Inc. sank 3.5 percent as results fell short of forecasts. Zimmer Holdings Inc. surged 12 percent after it agreed to buy Biomet Inc. in a deal valued at $13.4 billion.

The S&P 500 rose 0.2 to 1,878.61 at 4 p.m. in New York. The Dow Jones Industrial Average was unchanged at 16,501.65. The Nasdaq 100 Index, which includes Apple (AAPL), climbed 1 percent. About 6.2 billion shares changed hands on U.S. exchanges, 10 percent below the three-month average.

“The earnings were decent overnight, especially from the tech sector, but we’re facing the headwind of strong momentum the six days before yesterday,” Joe Bell, senior equity analyst at Cincinnati-based Schaeffer’s Investment Research Inc., said in a phone interview. “We’re facing an overbought situation and a bit of profit-taking mid-day.”

U.S. stocks have repeatedly failed to climb from the S&P 500’s current level. The gauge earlier this week rose to within six points of the all-time high of 1,890.9 reached April 2. It fell 0.2 percent yesterday, snapping a six-day rally that was the longest since September, and trades at 17 times reported earnings, near its highest valuation in four years.

The Dow average fluctuated today, rising as much 0.2 percent and sinking 0.3 percent during the session, as investors weighed earnings from Caterpillar Inc., Verizon and 3M Co.

Broader gauges briefly turned lower earlier today amid reports of escalating violence in Ukraine. President Vladimir Putin warned the country against continuing its anti-separatist offensive after government troops killed five rebels and prompted Russia’s military to begin new drills on the two nations’ border.

An agreement to disarm rebels signed last week in Geneva by Ukraine, Russia, the European Union and the U.S. is on the brink of collapse. President Barack Obama said today the U.S. and its allies have additional sanctions against Russia ready to go because Putin’s government has yet to abide by the accord.

Data from the Commerce Department today showed orders for durable goods such as cars and computers rose more than forecast in March, pointing to faster production that will help spur the economy. Separate data showed more Americans than forecast filed applications for unemployment benefits last week.

Of the 204 companies in the S&P 500 that have released earnings this season, 76 percent have exceeded analysts’ profit estimates, while 53 percent have beaten sales projections, according to data compiled by Bloomberg. Some 64 S&P 500 members report today making it the busiest of the period.

Analysts predict companies on the benchmark gauge will collectively report a 0.7 percent increase in first-quarter profit and a 2.6 percent increase in revenue.

“There’s no question earnings numbers were good, but there was some anticipation of it to a certain degree,” John Manley, who helps oversee about $233 billion as chief equity strategist for Wells Fargo Funds Management in New York, said in a phone interview. “I still tend to think, at the end of the day, that we’re going to see earnings be the more important thing that drives the market.”

The Chicago Board Options Exchange Volatility Index, a measure of stock volatility known as the VIX, rose 0.4 percent to 13.32 for a second day of gains.

Six of the 10 main S&P 500 groups retreated today, with phone stocks sinking 1.7 percent, adding to a 2.2 percent slide yesterday. Technology shares jumped 1.1 percent to pace gains.

Apple Rally

Apple surged 8.2 percent to $567.77, the highest this year. The world’s most valuable company reported surging sales of iPhones after the handset became available through China Mobile Ltd. Apple also said it will increase its share repurchase authorization by $30 billion, boost its dividend and split its stock seven for one.

Apple’s first split in nine years would cut the stock price to roughly $75 a share, removing an obstacle to its inclusion in the Dow average. The shares currently trade for so much that putting it in the Dow would have given Apple too much influence in the 118-year-old equity gauge, which ranks companies by the level of their shares rather than market value.

Verizon Communications plunged 2.4 percent for the biggest slide in the Dow. The company is preparing for a surge of customers opting to pay for smartphones on installment plans, threatening to shrink monthly wireless bills. The looming shift in revenue cast a shadow today over first-quarter earnings and subscriber gains that beat analysts’ estimates.

Phone Rout

AT&T shares fell 3.8 percent yesterday after investors grew concerned that a boost in profits from sales of unsubsidized phones would be short-lived. The stock dropped another 1.2 percent today to a one-month low.

3M declined 1 percent. The maker of products from Scotch tape to auto insulation reported first-quarter earnings that trailed analysts’ estimates as Latin America demand slowed and foreign currencies weakened.

Caterpillar rose 1.8 percent. The largest maker of mining and construction equipment posted first-quarter earnings and sales that beat analysts’ estimates as it boosted its full-year outlook on improved expectations for the building industry.

Zimmer Holdings jumped 12 percent. The maker of artificial joints agreed to acquire rival orthopedic-device maker Biomet Inc. in a cash-and-stock deal valued at $13.4 billion. Closely held Biomet’s parent, Biomet Group Inc., will withdraw its plans for an initial public offering, Zimmer said.

Facebook (FB) Fluctuates

Facebook Inc. slipped 0.8 percent. The world’s largest social-networking site reported first-quarter profit and revenue yesterday that blew past analysts’ estimates. The company today said it bought fitness application Moves for an undisclosed amount, as the social network jumps into the increasingly popular fitness-tracking market.

An S&P index of homebuilders rallied 3.8 percent, the most since January, as all 11 members advanced. D.R. Horton increased 8.3 percent after the largest U.S. homebuilder by revenue reported earnings that beat estimates as prices and orders climbed. PulteGroup Inc. rose 2.3 percent as profit exceeded forecasts.

General Electric Co. added 0.2 percent. People with knowledge of the matter said the company is in talks to buy France’s Alstom SA in what would be its biggest-ever acquisition. The U.S. maker of jet engines and locomotives may pay more than $13 billion for Alstom, one of the people said.

Phone Chips

Aetna Inc. gained 5.9 percent. The third-largest U.S. health insurer reported profit that beat analyst estimates and raised its forecast as membership rose for the eighth consecutive quarter.

Qualcomm dropped 3.5 percent. The largest mobile-chip maker forecast third-quarter profit and revenue that fell short of some analysts’ estimates, citing weaker phone sales in China as the rollout of a fast new data network takes longer than Qualcomm expected.

The company also said it received a Wells notice from the U.S. Securities and Exchange Commission last month that the agency recommended enforcement action related to bribery allegations in China.

Xilinx Inc. plunged 9.1 percent, the most in the S&P 500 today and the stock’s biggest slide since 2005. The maker of programmable chips used in mobile-phone based stations as Credit Suisse Group AG lowered its rating on the company to neutral from outperform.

To contact the reporters on this story: Joseph Ciolli in New York at jciolli@bloomberg.net; Callie Bost in New York at cbost2@bloomberg.net

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

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