Tags: stocks | ECB | oil | earnings

Stocks Rally Most in Year Amid Earnings, ECB Outlook; Oil Gains

Tuesday, 21 October 2014 05:01 PM

U.S. stocks extended a rebound, with the Standard & Poor’s 500 Index rallying the most in a year, as speculation grew the European Central Bank is buying bonds and corporate results beat estimates. The euro weakened while gold paced gains among commodities.

The S&P 500 surged 2 percent at 4 p.m. in New York, extending a four-day rally to 4.2 percent. The gauge has jumped 6.6 percent from its intraday low on Oct. 15. Apple Inc. gained 2.7 percent, sending the Nasdaq 100 Index 2.6 percent higher for its best day since January 2013. Yahoo! Inc. added 4 percent in late trading after reporting results. The Bloomberg Commodity Spot Index climbed 0.7 percent as gold climbed to a five-week high. The Chicago Board Options Volatility Index, or VIX, extended its slide to 38 percent in the last four days.

The S&P 500’s four-day gain was the biggest since January 2013 on better-than-estimated earnings and speculation the Federal Reserve will boost stimulus if growth slows. Selling had erased $1.8 trillion in U.S. equity values from Sept. 6 to Oct. 16. European shares rallied 2.1 percent today, extending gains after two people familiar with the matter said the ECB bought Italian covered bonds under its asset purchase program. Sales of previously owned U.S. homes rose in September to the highest level in a year.

“The market’s a sugar addict and the sweet nectar of free money, any kind of incremental liquidity from a central bank, whether it’s Europe or China, is what the market’s looking for,” Benjamin Dunn, president of Alpha Theory Advisors in Crested Butte, Colorado, said in a phone interview. “The focus here is shifting to earnings and away from macro.”

Corporate Earnings

The ECB entered the 2.6 trillion-euro ($3.3 trillion) covered bond market after President Mario Draghi unveiled plans last month to bolster companies’ and households’ access to financing. Draghi, who also included asset-backed securities in the program, intends to expand the bank’s balance sheet by as much as 1 trillion euros to stave off deflation in the euro area.

Apple gained 2.7 percent after forecasting revenue for the holiday quarter that topped estimates. Texas Instruments Inc. rose 5.3 percent and Harley-Davidson Inc. jumped 7.3 percent after reporting higher-than-estimated profit. Southwest Airlines Co. and Delta Air Lines Inc. added more than 4 percent as airlines advanced to push the Dow Jones Transportation Average 3.1 percent higher, its best day since August 2013.

Coca-Cola Co. sank 6 percent, the most since 2008, after saying it will miss its 2014 profit-growth target.

About 79 percent of S&P 500 companies that have reported quarterly results this season exceeded profit projections, while 60 percent beat revenue estimates. Profit for index members rose 5.9 percent in the third quarter and sales increased 4 percent, analysts projected.

Bullard Rally

The S&P 500’s gain today extended a rally that started as St. Louis Fed President James Bullard said policy makers should consider delaying the end of bond purchases to halt the decline in inflation expectations. He was the first official to publicly suggest the central bank should extend its asset-purchase program when policy makers meet later this month.

Bank of America Merrill Lynch strategists said in a report today that another 10 percent decline in U.S. stocks might spark speculation of a fourth round of quantitative easing from the Fed. That would mimic how the Fed acted following equity declines of 11 percent in 2010 and 16 percent in 2011.

Sales of existing homes in the U.S. last month added to signs that residential real estate will be a plus for the economy. Closings advanced 2.4 percent to a 5.17 million annual rate.

More than $4 trillion had been erased from the value of equities worldwide the past six weeks amid signs the global economy is slowing. Deepening concern over the advance of Islamic militants in Syria and the spread of the Ebola virus also rattled investor sentiment.

Europe Equities

European stocks surged today after four weeks of declines amid concern that a potential recession in Europe will undermine growth as the Fed winds down stimulus.

More than 580 of the companies in the Stoxx 600 advanced, with trading volumes 30 percent greater than the 30-day average, according to data compiled by Bloomberg.

Swedbank gained 4.7 percent after announcing job cuts and posting net income that beat estimates. Swiss drugmaker Actelion Ltd. jumped 3 percent, raising its full-year forecast for a second time after earnings beat estimates.

“The focus may go back to the micro, the corporate, as we get into the meat of the reporting season,” James Buckley, who helps oversee about $48 billion as a portfolio manager at Baring Asset Management Ltd. in London, said by telephone. “The quarter reported may be tough because of the global and geopolitical uncertainty, but guidance will be crucial and that’ll have some tailwinds in terms of lower commodity prices and weaker euro.”

Currency Moves

The euro declined today against the dollar as the ECB bought covered bonds for a second day as part of President Mario Draghi’s plan to boost lending, and Reuters reported the central bank is considering corporate-debt purchases.

The greenback halted a three-day gain versus the yen as traders pushed back estimates for when the Fed will increase U.S. interest rates.

The MSCI Emerging Markets Index slipped 0.1 percent after dropping as much as 0.4 percent, as a gain in Russia’s Micex Index offset a drop in Brazil’s Ibovespa.

The Micex climbed 0.5 percent as energy producers rallied, while the Ibovespa tumbled 3.4 percent and the real weakened 0.7 percent after voter poll results showed increased support for President Dilma Rousseff, damping the prospect of a new government reviving the nation’s economy.

Benchmark gauges in Russia, India, South Africa, Turkey, Poland and Abu Dhabi advanced at least 0.7 percent.

China, Gold

The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong slipped 0.2 percent and the Shanghai Composite Index dropped 0.7 percent on speculation today’s economic data bolstered the government’s case for avoiding broader stimulus measures.

China’s economy expanded 7.3 percent in the third quarter from a year before. While that beat the estimate of 7.2 percent in a Bloomberg survey, it was still the slowest pace since 2009.

Commodities rallied as copper prices jumped the most in five weeks in London after the data from China, the world’s biggest user of industrial metals.

Metal Moves

Gold futures for December delivery rose 0.6 percent to settle at $1,251.70 an ounce on the Comex in New York, the highest for a most-active contract since Sept. 10.

On Oct. 6, gold slumped to $1,183.30, the lowest this year, as gains in the U.S. economy supported the case for higher borrowing rates.

Silver futures for December delivery rose 1.1 percent to $17.549 an ounce, the biggest gain since Oct. 9. Copper gained 1.2 percent.

West Texas Intermediate crude rose in New York, while Brent futures gained in London.

WTI for November delivery, which expired today, increased 10 cents to settle at $82.81 a barrel. The more active December contract rose 58 cents to $82.49.

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U.S. stocks extended a rebound, with the Standard & Poor's 500 Index rallying the most in a year, as speculation grew the European Central Bank is buying bonds and corporate results beat estimates.
stocks, ECB, oil, earnings
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2014-01-21
Tuesday, 21 October 2014 05:01 PM
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