Financial and industrial shares in the S&P 500 climbed at least 2.5 percent as a group, as Caterpillar advanced 6.4 percent and Moody’s jumped 13 percent. Phone stocks surged 3.9 percent, the most among 10 industries, as Sprint Nextel Corp. (S) and MetroPCS Communications Inc. (PCS) beat sales estimates. Apple Inc. (AAPL) and United Parcel Service Inc. (UPS) fell at least 3.1 percent amid disappointing earnings. Facebook (FB) Inc. lost 18 percent after reporting its first results since its initial public offering.
The S&P 500 advanced 1.7 percent to 1,385.97 for the week, rising the most since June and extended its gain for the year to 10 percent. The Dow Jones Industrial Average climbed 253.09 points, or 2 percent, to 13,075.66. Its three-week rally was the longest streak since January.
“There is hope that policy makers will do what they need to do to ease the debt crisis,” said Michelle Clayman, chief investment officer at New Amsterdam Partners in New York, which manages $2.5 billion. “Whenever that happens, the market cheers up again. I’m not sure that it’s an issue of people being so happy. It’s more that things aren’t going to get worse and maybe they will stabilize.”
Lowered Outlooks
Equities slumped in the first three days of the week amid concern more of Spain’s regions will seek aid, while Moody’s Investors Service lowered outlooks for Germany, the Netherlands and Luxembourg. The S&P 500 then posted the biggest two-day rally since December, surging 3.6 percent, after speculation grew that the European Central Bank would buy bonds to ease borrowing costs for Spain and Italy.
ECB President Mario Draghi will hold talks with Bundesbank President Jens Weidmann in an effort to overcome the biggest stumbling block to a new raft of measures including bond purchases, two central bank officials said on condition of anonymity because the talks are private. German Chancellor Angela Merkel, French President Francois Hollande and Draghi pledged to do everything to protect the euro.
Economic reports showed the U.S. economy expanded at a slower pace in the second quarter as a softening job market prompted Americans to curb spending. Consumer confidence in July dropped to the lowest this year, new home sales unexpectedly fell from a two-year high while orders for equipment slumped.
Fed Speculation
Concern about a global economic slowdown and a worsening crisis in Europe sent the S&P 500 down 9.9 percent from its 2012 high in April through June 1. The index has since climbed 8.4 percent after central banks in Europe and China cut interest rates and weaker-than-expected economic data fueled speculation that the Federal Reserve may be close to adding more stimulus. The Federal Open Market Committee meets next week.
“The occurrence of real significant weaknesses will be less and less, unless you have some catastrophic failure in the banking system in Europe,” David Steinberg, who manages about $250 million as founder of Chicago-based DLS Capital Management LLC, said in a phone interview. “Many of the people that want to be out are already out. They’re going to open up their eyes and see that the world is going to continue to go on, and assets are going to go higher.”
An S&P index of financial shares jumped 2.8 percent during the week. JPMorgan Chase & Co. (JPM) climbed 8.8 percent, the most in the Dow, to $36.89, while Goldman Sachs Group Inc. (GS) gained 7.9 percent to $101.64.
Credit Ratings
Moody’s surged 13 percent, the most since October, to $40.91. The second-largest provider of credit ratings reported second-quarter profit that beat analyst estimates as demand rose for its financial information.
Regions Financial Corp. (RF) rose 11 percent to $7.10. The 10th- largest U.S. bank by deposits exceeded estimates for a fourth straight quarter as provisions for loan losses declined.
Caterpillar led industrial companies to a 2.5 percent increase. The largest maker of construction and mining equipment added 6.4 percent to $86.16 after raising its full-year profit forecast. The company, considered a U.S. economic bellwether, is selling more excavators, scrapers and dozers even as it sees a slowdown in some of its largest markets. Machinery sales are climbing as developed countries replace aging equipment and U.S. construction spending gains.
PulteGroup Inc. (PHM), the largest U.S. homebuilder by revenue, climbed 11 percent to $12.01 after reporting better-than- estimated earnings amid a jump in orders. U.S. homebuilders are becoming more profitable as record-low mortgage rates and stabilizing prices lure buyers to new houses.
IPhone Demand
The S&P 500 index of phone companies rallied to the highest level since 2008. Sprint, the third-largest U.S. wireless carrier, jumped 18 percent to $4.31 after iPhone demand helped bolster spending on data plans, lifting the company’s sales above analysts’ estimates.
MetroPCS soared 41 percent, the most since it went public in 2007, to $9.04. The pay-as-you-go wireless carrier reported second-quarter earnings that beat estimates amid a decrease in promotional costs.
While cost cuts helped 72 percent of S&P 500 companies that have reported quarterly results so far exceed analysts’ estimates, sales topped at only 41 percent of companies, according to data compiled by Bloomberg.
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 the latest week, their outlook improved and they now estimate a 0.8 percent drop.
‘Definitely Suffer’
The earnings beat “shows you that companies are running their business very well and they’re mindful of expenses,” E. William Stone, chief investment strategist at PNC Wealth Management in Philadelphia, said in a phone interview. His firm manages about $112 billion. Their sales picture “does underline that the macro environment is becoming more and more challenging. If it continues to deteriorate, at some point earnings will most definitely suffer.”
UPS, the world’s largest package-delivery company, cut its full-year forecast after a drop in international package sales dragged quarterly profit below analysts’ estimates. The stock declined 3.1 percent to $76.
Apple slipped 3.2 percent to $585.16 after quarterly sales and profit missed analysts’ estimates for the second time since 2003. Customers delayed purchases of existing iPhone versions while awaiting the next model.
Narrower Margins
Facebook plunged 18 percent to a record $23.71 after reporting a slower sales gain and narrower profit margins. Executives led by Chief Executive Officer Mark Zuckerberg, addressing analysts for the first time since the company’s May 17 initial public offering, issued no growth forecasts and said little else to reassure investors who fret that the company is overvalued. The largest social network is down 38 percent from its $38 IPO price.
Raw-material producers posted the only retreat among 10 S&P 500 groups, falling 0.8 percent. Cliffs Natural Resources Inc. (CLF), the largest U.S. iron-ore producer, tumbled 14 percent to $39.39 after the company forecast higher costs and lower prices.
McDonald’s Corp. (MCD) reported second-quarter profit that trailed analysts’ estimates amid slowing U.S. same-store sales and said the restaurant chain may miss its full-year operating income growth target. The shares slipped 2.6 percent to $89.19.
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