The benchmark index snapped a three-day rally today amid concern Europe’s crisis is intensifying. Baker Hughes surged 16 percent this week to lead energy shares to the biggest gain among the 10 S&P 500 industry groups. Technology stocks rose 1.9 percent as IBM climbed 3.5 percent and EBay Inc. (EBAY) jumped 12 percent amid better-than-expected earnings. Financial companies had the biggest retreat after Bank of America Corp. (BAC) and Morgan Stanley (MS) sank more than 9 percent amid disappointing results.
The S&P 500 added 0.4 percent to 1,362.66 during the week, extending its gain for the year to 8.4 percent. The Dow Jones Industrial Average climbed 45.48 points, or 0.4 percent, to 12,822.57, the biggest weekly gain since June 29.
“There is this euphoria that maybe things are starting to turn around,” Linda Bakhshian, a money manager with Federated Investors in Pittsburgh, said in an interview this week. Her firm oversees $363.6 billion. “Expectations were pulled back. Companies are beating and the market is happy again because things are not that bad.”
Optimism about corporate earnings and monetary stimulus has sent the S&P 500 up 6.6 percent from a low on June 1. Profits (SPX) have exceeded analyst forecasts at about 73 percent of the 118 S&P 500 companies that have reported quarterly results so far, according to data compiled by Bloomberg. Apple Inc., Exxon Mobil Corp. and about 170 other S&P 500 companies are scheduled to announce earnings next week.
Earnings Projections
Analysts ratcheted down their projections for second- quarter profits at the start of earnings season, forecasting a decrease of 2.1 percent, compared with an increase of 4.4 percent at the beginning of this year, data compiled by Bloomberg show. By the end of this week, their outlook improved and they now estimate a 1.6 percent decline.
Stocks rose early in the week after Bernanke told senators that the central bank is prepared to act to boost growth if the labor market doesn’t improve. Disappointing data added to evidence the world’s largest economy is slowing, with reports showing that retail sales unexpectedly slid, manufacturing in the Philadelphia region contracted for a third month, claims for unemployment benefits rose and an index of leading economic indicators declined more than forecast.
‘Boost Growth’
“The assumption is that the Fed is going to continue to try to do what it can to boost growth, or at least continue conditions that could give it a chance,” Dean Gulis, who oversees about $3.5 billion as a fund manager at Loomis Sayles & Co. in Bloomfield Hills, Michigan, said in a telephone interview this week.
Europe’s debt crisis and concern about a global economic slowdown continued to loom over the markets. The S&P 500 fell 1 percent from a two-month high today after Spain said the recession will extend into next year and the region of Valencia prepared to seek a rescue from the central government. Xinhua News Agency said China will seek to keep a “firm grip” on the real estate market to prevent a rebound in housing prices, intensifying concern an economic slowdown could reduce demand for raw materials.
An S&P 500 index of energy shares advanced 2.6 percent this week. Baker Hughes (BHI) jumped 16 percent to $45.59. The third- largest oilfield-services company reported per-share profit that beat analysts’ estimates by 30 percent, the most since at least 2001, data compiled by Bloomberg show.
IBM Climbs
Technology companies added 1.9 percent for the second- biggest increase among the 10 groups in the S&P 500. IBM climbed 3.5 percent to $192.45. The world’s biggest computer-services provider boosted its full-year earnings forecast after second- quarter profit beat analysts’ estimates, helped by a decade-long shift to higher-margin software sales.
EBay advanced 12 percent to $44.85 for the biggest gain since September. The world’s largest Internet marketplace reported sales and profit that topped analysts’ estimates as more U.S. consumers shopped for new items on the site.
SanDisk Corp. (SNDK) surged 16 percent, the most since April 2010, to $38.70. The maker of flash memory for mobile devices exceeded analysts’ per-share earnings estimate by 14 percent, the most in a year, according to data compiled by Bloomberg.
Google Inc. (GOOG) climbed 6 percent to $610.82. The owner of the world’s most popular search engine said second-quarter revenue surged 35 percent, helped by its acquisition of Motorola Mobility Holdings and as more users clicked on advertisements.
Intel, AMD
Intel Corp. added 1.1 percent to $25.52. The world’s largest semiconductor maker reported second-quarter profit that topped analysts’ estimates while scaling back its annual sales forecast. Advanced Micro Devices Inc. (AMD), a rival of Intel, tumbled 14 percent to $4.22 after predicting a revenue decline amid market-share losses and diminished demand for personal computers.
Walgreen Co. (WAG) surge 13 percent to $34.60 for the biggest rally since 2000. The largest U.S. drugstore chain renewed a contract to provide Express Scripts Inc. (ESRX) customers with prescriptions, ending a dispute that contributed to an 11 percent decline in the retailer’s quarterly profit.
Financial shares fell 2.4 percent as a group, the most in seven weeks. Wall Street’s five biggest banks reported the worst start to a year since 2008, with combined first-half revenue falling 4.5 percent to $161 billion, the lowest since $135 billion four years ago. The firms blamed the decline on low interest rates and a drop in trading and deal-making.
Headcount Cuts
Bank of America sank 9.6 percent to $7.07 for the biggest loss since November. The lender said demands for buybacks from mortgage-bond investors and insurers surged more than $6 billion in the second quarter to $22.7 billion. Record claims for refunds on faulty mortgages cast doubt on whether improvements in the lender’s real estate operations will last, according to Paul Miller, an analyst at FBR Capital Markets.
Morgan Stanley reported a 50 percent drop in earnings on the biggest decline in trading revenue among Wall Street firms and said it will cut headcount by 4,000 this year. The stock slumped 9 percent to $12.78 for the week.
Chipotle Mexican Grill Inc. (CMG) plunged 19 percent, the most since its 2006 initial public offering, to $316.98 after second- quarter sales trailed analysts’ estimates. Slower U.S. consumer spending hurt the chain’s sales with smaller gains as the year proceeded, Chief Financial Officer Jack Hartung said on an analyst call. Extreme weather may boost food costs later this year and next, Hartung said.
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