Stocks gain with commodities, but euro slips
U.S. stocks rose for a second day amid better-than-estimated earnings and a jump in housing starts. Treasuries climbed while the dollar fell against most peers and natural gas led commodities to a sixth straight gain.
The Standard & Poor's 500 Index added 0.5 percent to 1,371.03 at 3:04 p.m. in New York and the Stoxx Europe 600 Index increased 1.1 percent. Ten-year Treasury yields dropped three basis points to 1.48 percent. German two-year notes rose after the nation sold 4.17 billion euros ($5.1 billion) of the securities with a negative yield for the first time, and the government's five-year rate declined to the lowest ever. The euro halted a three-day advance to trade 0.2 percent lower.
Intel Corp. climbed 3.5 percent to pace the advance in technology companies and Honeywell International Inc. surged 6.3 percent to lead industrial shares up after profits topped analyst estimates. U.S. housing starts jumped 6.9 percent to the highest level since 2008. Federal Reserve Chairman Ben S. Bernanke testified to Congress for a second day on the state of the economy, telling lawmakers in the House that monetary policy has helped growth and the job market.
"Earnings have been a mixed bag so far but given the healthy state of corporate America with cash on the balance sheets and valuations undemanding, we can weather this environment in terms of share prices," Mark Luschini, chief investment strategist for Philadelphia-based Janney Montgomery Scott LLC, which manages about $54 billion, said in a telephone interview. "Looking at the markets, all I can see in them is the Bernanke bid."
Stocks rallied yesterday, sending the S&P 500 up 0.7 percent, after Bernanke told the Senate Banking Committee that policy makers are studying options for further easing that may include additional asset purchases. Bernanke today said central bankers are capable of removing record stimulus from the financial system and raising interest rates when needed to avoid triggering inflation.
"It will be a similar pattern to what we've seen in previous episodes where the Fed cut rates, provided support for the recovery, and when the recovery reached a point of takeoff where it could support itself on its own, then the Fed pulled back, took away the punch bowl," Bernanke told the House Financial Service Committee as part of his semi-annual testimony to Congress.
The Fed said the economy expanded at a "modest to moderate" pace in June and early July, as retail sales and manufacturing cooled in some regions, according to the central bank's Beige Book business survey today, which is based on reports from its 12 district banks.
Technology companies in the S&P 500 surged 1.7 percent as a group, while industrial shares rallied 1.5 percent. Intel's earnings of 54 cents a share topped the average analyst estimate of 52 cents. The company said revenue will increase 3 percent to 5 percent in 2012, lower than an earlier prediction for growth in the high single-digit percentages.
"Intel lowered guidance but it was not unexpected and not disastrous," Michael James, a managing director of equity trading at Wedbush Securities Inc. in Los Angeles, said in an e- mail. "Pessimism was pretty high and we're now seeing people both covering and getting long some names. Intel's leading the the technology group higher."
EMC Corp. surged 9.3 percent. The software company said Pat Gelsinger will succeed Paul Maritz as chief executive officer of VMware Inc. Maritz will return to EMC, which owns 79 percent of VMware, as chief strategist. VMWare jumped 13 percent.
Honeywell rallied after the maker of flight controls and thermostats reported better-than-estimated results driven by sales in its aerospace unit. Amphenol Corp., a maker of fiber- optic cables, and W.W. Grainger Inc., a distributor of building maintenance supplies, surged at least 10 percent after releasing improved earnings forecasts.
The S&P 500 has climbed for two straight days after slumping in seven of the previous eight sessions. The index is down more than 3 percent from a four-year high in April amid concern the economic recovery was slowing while investors braced for what is projected to be the first drop in quarterly earnings in almost three years.
Earnings have exceeded analyst estimates at 73 percent of the 63 companies in the S&P 500 that have reported results so far, according to data compiled by Bloomberg. Profits have slumped 4.6 percent for the group and the entire index is projected to report a 2.1 percent decrease in earnings.
S&P 500 Forecast
Credit Suisse Group AG cut its year-end forecast for the S&P 500 to 1,425 from 1,440, citing the potential of a U.S. recession induced by so-called fiscal cliff. Andrew Garthwaite, global equity strategist, said he sees a 10 percent chance of the economy contracting should lawmakers do nothing to prevent about $607 billion of tax increases and spending cuts from kicking in at the end of the year.
The dollar weakened against eight of 16 major peers, losing more than 0.3 percent versus the Japanese yen and Australian dollar. The U.S. currency strengthened 0.2 percent to $1.2271 per euro.
Natural gas surged as much as 8 percent, leading gains in 22 of 24 commodities tracked by the S&P GSCI Index, amid predictions of a smaller-than-normal increase in stockpiles. Cattle futures and hogs gained more than 2 percent on speculation that the declining U.S. herd size caused by rising feed costs will lead to a shortage of supplies.
Among European stocks, Credit Suisse jumped 4.5 percent after it announced measures to cut costs and boost capital by 8.7 billion Swiss francs ($8.9 billion). Puma SE tumbled 4.8 percent after Europe's second-largest sporting-goods maker cut forecasts for sales and profit in 2012.
Analysts are cutting European profit forecasts at the fastest rate since 2009 as the region heads for a recession and growth in China slows for a sixth quarter.
U.K. five-year note yields fell six basis points to 0.49 percent after Bank of England minutes indicated policy makers may reconsider the case for an interest-rate cut.
Germany's two-year note yield dropped one basis points to minus 0.07 percent, while Finnish two-year yields fell below zero for the first time. Spain's 10-year bond yield rose 14 basis points to 6.96 percent as the securities dropped for a fifth day.
The MSCI Emerging Markets Index declined 0.2 percent, halting a three-day gain. China's Shanghai Composite Index rose 0.4 percent. The Hang Seng China Enterprises Index of Chinese companies listed in Hong Kong dropped 0.9 percent. South Korea's Kospi index slid 1.5 percent while Taiwan's Taiex Index and the Philippine Stock Exchange Index lost more than 1 percent.
Chinese Premier Wen Jiabao said the nation's labor situation will become more "severe," stoking bets he'll announce measures to spur growth as the State Council meets.
"There are expectations for more measures to boost the economy at the State Council meeting so investors are using that as a reason to buy," said Wu Kan, a Shanghai-based fund manager at Dazhong Insurance Co., which oversees $285 million.