Earnings, Fed comments send stocks to new high

July 18, 2013

Stronger-than-expected corporate earnings, good economic data and reassuring comments by Federal Reserve Chairman Ben S. Bernanke sent the stock market to a record high Thursday.

The market value of the benchmark Standard & Poor’s 500-stock index rose above $15 trillion for the first time. The S&P 500 closed at 1689.37, up 0.5 percent. It earlier rose as high as 1693, surpassing the previous intraday high of 1687.18, set May 22.

The Dow Jones industrial average closed 0.5 percent higher at 15,548.54, its 27th record-high close this year. After midday, the indicator reached an all-time intraday high of 15,589. The Nasdaq also had an up day, rising 0.04 percent to close at 3611.28.

On a day when some 32 companies posted quarterly results, the U.S. market was boosted by IBM, which rose 2 percent after the company raised its full-year earnings guidance, and by UnitedHealth, whose stock rose 7 percent after profit beat estimates.

Global markets also rose, boosted by data showing that the U.S. economy is gaining strength and by Bernanke’s reassurance that the withdrawal of the Fed’s efforts to buy bonds and hold down interest rates is conditional on the recovery of the economy. The dollar strengthened, and volatility in the markets decreased.

Morgan Stanley rallied 4 percent as stock-trading revenue bolstered its profit 66 percent.

Technology companies, though, had a poorer showing Thursday. Intel lost 4 percent after forecasting that third-quarter sales may fall short of some analysts’ predictions. EBay fell 7 percent after its forecast for third-quarter sales missed estimates.

After the market closed Thursday, Microsoft posted lower-than-expected earnings and missed its revenue forecast. Its quarterly earnings per share came in at 59 cents compared with an estimate of 75 cents. Google’s earnings per share also missed expectations at $9.56, which led the company’s stock to drop about 4 percent in after-hours trading.

On the whole, earnings were better than expected. According to Sam Stoval, chief equity strategist at S&P Capital IQ, “The street view is now that quarterly earnings growth will be 3.9 percent, compared to 2.9 percent at the beginning of the quarter.” But Stoval noted that although earnings are expected to rise, revenue is expected to have fallen 1.2 percent.

“Company earnings are fair. There’s a strong bottom line, but not as strong revenue growth,” said Jason Benowitz, a portfolio manager at the Roosevelt Investment Group. “The picture is mixed; still, companies have been able to increase their profitability — and their valuations remain cheap relative to earnings.”

In his testimony to the Senate Banking Committee, Bernanke said the pace of economic recovery will determine when the Fed reduces its asset purchases. “The Fed has been on a campaign to calm the markets, conveying the message that the tapering of its bond-buying program will be ­data-dependent,” said Benowitz. The Fed has linked its tapering to an improvement in employment and the control of inflation.

Labor Department figures showed that fewer Americans than forecast filed applications for unemployment benefits. Jobless claims dropped to 334,000 in the week that ended July 13, the fewest since early May, from a revised 358,000 the prior period.

Inflation also seems to remain under control. Even though the American Institute of Economic Research’s index of the most frequently purchased consumer items rose 0.5 percent in June because of costlier household utilities, the institute said it was because of seasonal effects. In particular, electricity bills have gone up because of the hot summer. AIER predicted that “a long-term price escalation is unlikely to follow, as several factors are keeping a lid on prices at the pump.”

Gas futures contracts remained relatively stable through June and mid-July, even as demand rose.

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