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U.S. Stocks Rise on Earnings Optimism as Citigroup Jumps

By Jacob Barach and Callie Bost
July 14, 2014 4:43 PM EDT 81 Comments

U.S. stocks advanced, with the Standard & Poor’s 500 Index rebounding from the biggest weekly loss in three months, as Citigroup Inc. (C) rallied on better-than-forecast earnings and Internet shares rebounded.

Citigroup climbed 3 percent, leading financial shares higher as trading revenue topped estimates. Facebook Inc. and Netflix Inc. paced gains in Internet stocks. Apple Inc. (AAPL) rose 1.3 percent after Barclays Plc advised investors to buy shares in the world’s biggest company by market value. URS (URS) Corp. jumped 12 percent after Aecom Technology Corp. agreed to acquire the construction-management company for about $4 billion.

The S&P 500 (SPX) added 0.5 percent to 1,977.10 at 4 p.m. in New York. The Dow Jones Industrial Average climbed 111.61 points, or 0.7 percent, to 17,055.42, touching an all-time high in intraday trading. The Russell 2000 Index jumped 0.5 percent after its worst weekly decline in more than two years.

“The earnings report out of Citigroup helped to lift the market,” Robert Pavlik, who helps oversee $4.5 billion as chief market strategist at Banyan Partners LLC in New York, said in a phone interview. “The market has more room to run. It’s going to be interesting to watch the amount of strength that it carries day to day.”

Goldman Sachs Group Inc. raised its S&P 500 forecast for 2014 today to 2,050 from 1,900. Rising earnings and faster economic growth will push equities higher and stocks are still attractive relative to bonds, according to a research report from David Kostin, chief equity U.S. strategist at the bank.

Record Levels

The S&P 500 slid 0.9 percent last week amid signs of financial stress at a Portuguese bank and speculation that the recent rally is overdone. The benchmark gauge closed at an all-time high and the Dow topped 17,000 for the first time on July 3. The S&P 500 hasn’t had a drop of 10 percent in more than two years and the gauge trades at a valuation of 18 times reported earnings, the highest since 2010.

JPMorgan Chase & Co., Goldman Sachs, Yahoo! Inc. and Intel Corp. are among the 58 companies on the S&P 500 posting earnings this week. Profit by the gauge’s members increased 4.5 percent in the second quarter, and revenue rose 3.1 percent, according to estimates compiled by Bloomberg.

Citigroup jumped 3 percent to $48.42. Better-than-estimated trading revenue and lower credit costs helped second-quarter profit beat analysts’ forecasts.

The third-largest U.S. bank by assets also agreed to pay $7 billion in fines and consumer relief to resolve government claims that it misled investors about the quality of mortgage-backed bonds sold before the 2008 financial crisis.

Banks Rally

Bank of America Corp. added 1.2 percent, JPMorgan Chase climbed 0.9 percent and Goldman Sachs increased 1.3 percent.

“Earnings generally are coming in pretty positively here and revenues are as well,” said Timothy Ghriskey, chief investment officer at New York-based Solaris Asset Management LLC, in a phone interview. “It’s a very early stage in this earning’s season to declare victory, but the indications look good here.”

Investors will also be watching statements from central banks and economic reports this week for clues to the strength of the global economy.

Federal Reserve Chair Janet Yellen is due to testify to U.S. lawmakers. Yellen will deliver her semi-annual monetary policy testimony to the Senate Banking Committee tomorrow and to the House Committee on Financial Services the following day.

Fed Stimulus

Minutes of the Fed’s June meeting released last week showed officials have agreed they’ll end their asset-purchase program in October if the economy holds up. At the same time, the policy makers said the central bank should continue to support favorable financial conditions needed to sustain growth, according to the minutes.

Three rounds of Fed bond-buying have helped propel the S&P 500 higher by more than 190 percent during the current five-year bull market.

Among economic reports this week, investors will receive data on housing, manufacturing, labor and inflation. The S&P 500 has rallied 7 percent this year amid signs the U.S. economy is recovering from a 2.9 percent contraction in the first quarter.

The Chicago Board Options Exchange Volatility Index retreated 2.2 percent to 11.82. The gauge known as the VIX (VIX) jumped 17 percent last week for its biggest rally in three months, after closing July 3 at the lowest since 2007.

More than 5 billion shares changed hands on U.S. exchanges today, 13 percent below the three-month average.

Apple Climbs

Eight out of 10 main industries in the S&P 500 increased today, with technology, financial and energy companies gaining more than 0.6 percent. Utilities fell 1.2 percent. The Dow Jones Transportation Average rallied 0.7 percent to reach a record.

Apple climbed 1.3 percent to $96.45 after Barclays raised its recommendation on the technology company to overweight, or buy, from a rating similar to hold. Separately, Israeli media-services company Emblaze Ltd. said a jury considering its legal claim against Apple ruled the U.S. company didn’t infringe its patent.

Internet stocks, among the worst performers last week, rallied today. The Dow Jones Internet Composite Index increased 1 percent. Netflix, which tumbled 6.9 percent last week, rebounded 2.9 percent. Pandora Media Inc. increased 2.7 percent. LinkedIn Corp., Facebook and Amazon.com Inc. each climbed at least 2 percent.

TripAdvisor Slumps

TripAdvisor (TRIP) Inc. fell 0.7 percent to $104.05. Nomura Holdings Inc. cut its rating for the vacation planning company to neutral from buy, saying the shares are at full valuation. TripAdvisor, which trades at 72 times reported earnings, rallied 43 percent to a record on June 27 from a low in April.

URS advanced 12 percent to $58.40. Aecom Technology agreed to acquire the engineering and construction-management company targeted by activist hedge fund Jana Partners LLC, gaining new services in markets like oil and gas.

Mylan Inc. rallied 2.1 percent to $51.24. The company is buying Abbott Laboratories’ generic-drug business and forming a new company that will be incorporated in the Netherlands, allowing for a lower-cost tax base.

Abbott will get 21 percent of the new organization, valued at about $5.3 billion, the company said today in a statement. Abbott rose 1.3 percent to $41.82.

Gentiva Health Services Inc. increased 2.5 percent to $16.21. Kindred Healthcare Inc. offered to buy a 14.9 percent stake in Gentiva for $16 a share as the company seeks to become the largest shareholder in the provider of home health-care services.

Merger Monday

Perrigo Co. rose 8.7 percent, the most in the S&P 500, to $158.85. The Ireland-based healthcare supplier is seeking a sale, said Israel’s Globes, without indicating where it got the information.

“It looks like this is another merger Monday, which could be adding to optimism we’re seeing today,” Jeffrey Saut, chief investment strategist at Raymond James & Associates Inc., said by phone. Raymond James oversees $450 billion in assets. “You had all these mergers and takeover announcements over the weekend. It’s not just here in the U.S., it’s been a global phenomenon throughout the first half of this year.”

Newmont Mining Corp. fell 2.4 percent to $25.32 as gold prices tumbled 2.3 percent, the most in almost seven months.

GoPro Inc. (GPRO) dropped 5.2 percent to $36.84. The company’s signature first-person-viewpoint camera could be subsumed as smartphones evolve, according to a Barron’s article. Shares of GoPro have soared 54 percent since they began trading on June 26.

To contact the reporters on this story: Jacob Barach in New York at jbarach1@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 Jeff Sutherland

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