U.S. Stocks Rise as Dow Climbs to 5-Year High on Earnings

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U.S. stocks advanced, sending the Dow Jones Industrial Average to a five-year high, as companies including Pfizer Inc. and Valero Energy Corp. reported earnings that beat estimates.

Karl Case, co-creator of the S&P/Case-Shiller index of property values in 20 U.S. cities, talks about the housing market. The S&P/Case-Shiller index increased 5.5 percent in November from a year ago, the biggest year-over-year gain since August 2006. Case speaks with Tom Keene and Michael McKee on Bloomberg Radio’s “Surveillance.” (Source: Bloomberg)

Pfizer rose 3.1 as the drugmaker also forecast higher-than- expected full-year profit. Energy shares climbed as Valero reported a 20-fold gain in profit and Paul Singer’s Elliott Management Corp. urged Hess Corp. (HES) to consider a spinoff of its U.S. shale assets. An index of homebuilders rallied 2.7 percent amid rising housing prices and a surge in D.R. Horton Inc.’s profit. EMC (EMC) Corp. and Seagate Technology Plc led technology shares lower amid disappointing outlooks.

The Standard & Poor’s 500 Index rose 0.4 percent to 1,506.69 at 1:04 p.m. in New York. The index has gained 5.7 percent this month as lawmakers agreed on a budget compromise and companies reported better-than-estimated earnings. The Dow added 67.56 points, or 0.5 percent, to 13,949.49 today, the highest level since October 2007. Trading in S&P 500 companies was 26 percent above the 30-day average at this time of day.

“The market’s responding favorably to and will continue to respond favorably to the earnings reporting season because the majority of companies will beat expectations,” Hank Smith, who helps oversee $6.5 billion as chief investment officer of Haverford Trust Co. in Radnor, Pennsylvania, said in a phone interview. “The market is all about expectations.”

Confidence Sinks

Equities rose even as the Conference Board’s index of consumer confidence decreased to 58.6, the weakest since November 2011. The January reading was lower than the most pessimistic forecast in a Bloomberg survey, which had a median estimate of 64.

Twenty-five companies in the S&P 500 are reporting quarterly earnings today. About 75 percent of the 175 companies in the S&P 500 that have released results so far in the quarter exceeded profit projections, while 67 percent surpassed sales estimates, according to data compiled by Bloomberg.

The S&P 500 has more than doubled from a 12-year low in 2009 as corporate earnings have climbed for three years and the Federal Reserve has increased its bond purchases to keep interest rates low to spur growth. The S&P 500 is less than 4 percent below its record of 1,565.15 set in October 2007 while the Dow is less than 2 percent from its all-time high.

Fed Meeting

Investors will watch an announcement from the Fed tomorrow to gauge the central bank’s future policy. Chairman Ben S. Bernanke’s latest round of bond buying will reach $1.14 trillion before he ends the program in the first quarter of 2014, according to median estimates in a Bloomberg survey of economists. The Federal Open Market Committee will renew its commitment to asset buying during a two-day meeting starting today after determining the benefits from the program exceed any risk of inflation or financial instability, according to economists surveyed Jan. 24-25.

“Economic growth is so modest at the moment that it’s still highly unlikely they’ll consider tightening,” Michelle Clayman, chief investment officer at New Amsterdam Partners in New York, which manages $2.5 billion, said in a phone interview. “It’d be pretty surprising to see any changes there.”

Industry Returns

Eight out of the 10 industry groups advanced today as phone, energy and health-care companies rose the most, gaining at least 1 percent.

Pfizer (PFE) climbed 3.1 percent to $27.67. The world’s biggest drugmaker forecast 2013 profit of as much as $2.30 a share, higher than analyst estimates, after introducing two products with the potential to each generate more than $1 billion a year.

Eli Lilly & Co. gained 3.7 percent to $54.61. Fourth- quarter earnings beat analyst estimates as sales of its top- selling drug, the Cymbalta depression treatment, increased 20 percent, helped by higher prices in the U.S.

Boston Scientific Corp. added 4.7 percent to $7.18. The second-biggest maker of heart devices said it plans to cut as many as 1,000 jobs in an expansion of its restructuring program that will save an additional $100 million to $115 million annually. The company issued a sales forecast of $7.05 billion to $7.35 billion for 2013, compared with the $7.25 billion generated last year.

Energy Stocks

Valero Energy gained 9.5 percent to $42.48. The world’s largest independent refiner by processing capacity said fourth- quarter profit rose 20-fold as the company boosted its use of discounted U.S. crude.

Hess jumped 8.9 percent to $68.04. The energy company should conduct a full strategic review, Elliott Management said. The activist investor urged shareholders of the energy company to vote for five new board members it’s proposing in a letter. Elliott Management owns 4 percent of Hess’s common stock, the largest initial investment in its 35-year history.

An S&P index of homebuilders climbed to the highest level since July 2007 as the S&P/Case-Shiller index of property values increased 5.5 percent in November, the biggest year-over-year gain since August 2006.

D.R. Horton surged 10 percent to $23.53. The largest U.S. homebuilder by volume said fiscal first-quarter profit more than doubled as demand for new houses climbed in a recovering real estate market.

EMC, Seagate

EMC lost 4.7 percent to $24.03. The provider of enterprise- storage systems and software forecast annual adjusted earnings per share of $1.85, lower than the estimate of $1.90.

VMware Inc., the software maker mostly owned by EMC, tumbled 21 percent to $77.83 after saying first-quarter revenue will be $1.19 billion at most. Analysts on average had projected $1.25 billion, according to data compiled by Bloomberg.

Seagate (STX) slid 9 percent to $34.05. The maker of hard drives said third-quarter revenue will be between $3.25 billion and $3.45 billion, missing the average projection of $3.47 billion in a Bloomberg survey of analysts. Rival Western Digital Corp. dropped 6 percent to $45.71.

BMC Software Inc. slumped 8.8 percent to $40.55. The maker of programs that help companies update servers and personal computers forecast fiscal 2013 profit that missed analysts’ estimates, a sign it’s struggling to clinch big contracts.

Ford Motor Co. slid 5.6 percent to $13.01 as the second- largest U.S. automaker said it expects to lose about $2 billion in Europe (F) this year as a likely recession in the region continues to sap demand for cars.

 

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