S&P 500 Rallies for 4th Day on European Stimulus, Apple Profit

Bloomberg

 

U.S. stocks rose for a fourth day as investors speculated the European Central Bank will boost economic stimulus and Apple Inc. forecast record sales.

Apple advanced 2.4 percent, sending the Nasdaq 100 Index to its biggest rally since January 2013. Texas Instruments Inc. rose 4.6 percent and Harley-Davidson Inc. jumped 6.1 percent after reporting higher-than-estimated profit. Southwest Airlines Co. surged 5 percent as airlines led transportation stocks higher. Coca-Cola Co. fell 6.2 percent, the biggest drop in six years, after sales slumped.

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The Standard & Poor’s 500 Index climbed 1.7 percent to 1,936.43 at 2:34 p.m. in New York. The equity gauge is up nearly 4 percent since Oct. 15 in the biggest four-day rally since February. The Dow Jones Industrial Average climbed 1484.51 points, or 1.1 percent, to 16,584.18 today. The Nasdaq 100 surged 2.4 percent. Trading in S&P 500 stocks was 11 percent above the 30-day average at this time of day.

“We’re hearing about the ECB buying bonds,” Benjamin Dunn, president of Alpha Theory Advisors, which advises hedge funds with about $6 billion in assets, said in a phone interview from Crested Butte, Colorado. “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.”

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The ECB bought Italian covered bonds as it returned to the market for a second day under its asset purchase program, according to two people familiar with the matter. Debt issued by Intesa Sanpaolo SpA was included in the purchases, according to one of the people, who asked not to be identified because the information is private.

ECB Stimulus

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.

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U.S. stocks have rallied after St. Louis Federal Reserve Bank President James Bullard said on Oct. 16 that policy makers should consider delaying the end of bond purchases. He was the first Fed official to publicly suggest the central bank should extend its asset-purchase program when policy makers meet later this month.

Quantitative Easing

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.

About 79 percent of S&P 500 companies that have reported quarterly results this season exceeded profit projections, while 61 percent beat revenue estimates. Profit for index members rose 5.9 percent in the third quarter and sales increased 4 percent, analysts projected. Broadcom Corp. and Yahoo! Inc. are among the 24 S&P 500 companies reporting today.

“Now we can finally focus on earnings in the U.S.,” Kully Samra, who helps manage U.K. clients at Charles Schwab Corp. in London, said by phone. His firm oversees about $2.4 trillion globally. “Apple’s numbers were stunning, so that should help markets. So far, earnings numbers look OK.”

The Chicago Board Options Exchange Volatility Index sank 12 percent to 16.32 for a fourth day of declines that has cut the gauge by 38 percent.

Transport Rally

All 10 of the S&P 500’s main groups advanced, led by a 2.6 percent rally among energy stocks as oil advanced in New York and London.

The Dow Jones Transportation Average surged 2.6 percent, boosted by gains in airline stocks. United Continental Holdings Inc. gained 3.7 percent and JetBlue Airways Corp. rose 2.9 percent.

Apple gained 2.4 percent. The world’s most valuable company is the biggest by weighting in the S&P 500 and Nasdaq 100. Bigger-screen iPhones, refreshed and slimmer iPads and the introduction of the Apple Pay mobile-payments service are helping boost sales.

Texas Instruments increased 4.6 percent. The company forecast fourth-quarter profit and revenue that may exceed analysts’ estimates, as demand for chips used in cars, industrial equipment and mobile phone systems fueled sales growth.

Earnings Gains

Encouraging releases also spurred shares of other companies. United Technologies Corp. added 0.5 percent after posting better-than-estimated earnings for the third quarter. Travelers Cos. advanced 1.1 percent as operating profit surpassed projections. Illumina Inc. rallied 9.5 percent after raising its annual profit projection.

McDonald’s Corp. lost 0.7 percent. The world’s largest restaurant chain said third-quarter profit fell 30 percent as U.S. sales slumped for the fourth straight quarter. Global comparable-store sales will fall in October, Chief Executive Officer Don Thompson said in today’s statement.

Coca-Cola tumbled 6.2 percent, the most since October 2008. The company is struggling with sluggish international growth and mounting concerns over obesity and artificial sweeteners. Sales fell to $11.98 billion in the quarter from $12 billion a year earlier, Coca-Cola said. Analysts had estimated $12.1 billion on average, according to data compiled by Bloomberg.

To contact the reporters on this story: Namitha Jagadeesh in London at njagadeesh@bloomberg.net; Oliver Renick in New York at orenick2@bloomberg.net

To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net Jeremy Herron

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