S&P 500 Rises to Record on Apple Results; Dow Retreats

By Oliver Renick  

July 23 (Bloomberg) -- Bloomberg’s Michael McDonough, discusses the economic risk of wage inflation as employers see rising compensation and a possible change in thinking at the Federal Reserve. He speaks on “Bloomberg Surveillance.”

The Standard & Poor’s 500 index rose to an all-time high, as Apple Inc. boosted technology companies and health-care shares rallied amid earnings. Boeing Co.’s results dragged the Dow Jones Industrial Average lower.
Apple surged to the highest since 2012 after signaling the long wait for new products is nearing an end. Biogen Idec Inc. rallied 11 percent after raising its full-year forecast, while Intuitive Surgical Inc. jumped 14 percent as results topped estimates. Boeing sank 2.3 percent as a cost for a tanker rekindled concern the planemaker would struggle with a new aircraft program. Juniper (JNPR) Networks Inc. tumbled 10 percent as its estimates trailed expectations.
The S&P 500 added 0.1 percent to a record 1,988.20 at 2 p.m. in New York. The Dow Jones Industrial Average slipped 16.52 points, or 0.1 percent, to 17,097.02. Boeing is the sixth-largest component of the Dow by weighting at 4.8 percent. Trading in S&P 500 stocks was 13 percent above the 30-day average at this time of day.
“The general tone of earnings has been positive not just on the bottom line but also top-line, and we’ve seen inflation numbers that gave comfort to those who believe the market will be supported by the Fed,” Russ Koesterich, chief investment strategist at New York-based BlackRock Inc., said via phone.
The S&P 500 rose yesterday after inflation data signaled the Federal Reserve won’t be compelled to raise interest rates in the near future and earnings reports boosted optimism about the economy. Chair Janet Yellen has said rates will stay low for a “considerable time” after the central bank stops its monthly bond purchases. It is on track to end them in October.

IMF Forecast

The Fed may have scope to keep interest rates at zero for longer than investors anticipate as inflation stays muted and a 2014 slowdown prolongs the labor-market recovery, the International Monetary Fund said in a conference call today.
The IMF cut its U.S. growth forecast for this year to 1.7 percent from 2 percent predicted in June, citing a first-quarter contraction.
The S&P 500 advanced 7.3 percent this year through yesterday amid better-than-estimated corporate earnings and central bank stimulus, as the U.S. economy shows signs of recovering from a 2.9 percent contraction in the first quarter. The gauge trades at 18.4 times the reporting earnings of its members, the highest since 2010.
Investors are also watching developments in Ukraine, where the Defense Ministry today said rebels in the eastern part of the country downed two government fighters.
The European Union yesterday threatened to restrict Russia’s access to capital markets and sensitive energy and defense technologies unless President Vladimir Putin expedites a probe into the downing of the Malaysia Airlines plane.

Geopolitical Tensions

In the Middle East, Israeli Justice Minister Tzipi Livni said the nation doesn’t plan to stop its Gaza Strip offensive as long as the Palestinian territory’s Hamas rulers continue to pose a threat. U.S. Secretary of State John Kerry flew to Israel in pursuit of an elusive truce deal.
“Usually we have a lot lighter of volume in this time of year and negative geopolitical news would drive the market down more than it has, but the economy is better fundamentally than most people think it is,” Kurt Cambier, senior partner at Littleton, Colorado-based Centennial Capital Partners, said in a phone interview.
Thirty seven companies on the S&P 500 including PepsiCo Inc., Dow Chemical Co., Boeing Co. (BA) and Facebook Inc. will post earnings today. Profits at S&P 500 members probably rose 6.2 percent in the second quarter, while sales gained 3.3 percent, according to analyst estimates compiled by Bloomberg.

Earnings Scorecard

Of the members of the gauge that have reported results so far, 78 percent have exceeded analysts’ estimates for profit and 65 percent have beaten revenue projections, according to data compiled by Bloomberg.
“There may be some times when the geopolitical landscape hogs the spotlight but it’s always about earnings, and they’re coming in better than expected,” Karyn Cavanaugh, senior market strategist at New York-based Voya Investment Management LLC, said by phone. Voya oversees about $220 billion. “People say we’re at all-time highs and that we have to come down, but we’re not out of the ball park with valuations yet.”
The Chicago Board Options Exchange Volatility Index (VIX), the gauge of S&P 500 (SPX) options prices known as the VIX, fell 3.5 percent to 11.81.
Eight of the 10 main S&P 500 groups advanced today, led by a 0.8 percent gain among health-care stocks. The Nasdaq Biotechnology Index jumped 1.7 percent.
Intuitive Surgical rallied 14 percent for the biggest gain in the index. The maker of robotics used in surgeries reported profit that surpassed analysts’ estimates.

Biotechnology Moves

Biogen Idec jumped 11 percent. The world’s biggest maker of multiple sclerosis drugs raised its 2014 profit forecast after quarterly results beat forecasts.
Puma Biotechnology Inc. surged 297 percent. The company said a clinical trial of its experimental drug blocked the return of breast cancer in women with a type of early-stage disease.
The Nasdaq 100 Index of technology stocks added 0.6 percent, with Biogen, Intuitive and Apple leading gains.
Apple jumped 2.9 percent, headed for the highest close since September 2012. The company stoked anticipation for new devices on a conference call, with Chief Executive Officer Tim Cook talking about an “incredible pipeline” that “we can’t wait to show you.” Apple earlier reported a drop in iPad demand and projected third-quarter revenue below analysts’ predictions.

Microsoft, Pepsi

Microsoft Corp. (MSFT) rose 0.3 percent. The company’s ’s main software business topped estimates, benefiting from improving corporate demand for computers and software delivered over the Web.
PepsiCo Inc. climbed 2.8 percent. The softdrink maker reported better-than-projected profit and raised its annual forecast after reducing costs.
Delta Air Lines Inc. rose 2.9 percent. The company benefited from strong domestic demand to post profit that topped estimates. Delta is the first U.S.-based carrier to report earnings for the traditionally strong second quarter.
Boeing sank 2.3 percent for the steepest decline in the Dow. The world’s biggest plane maker took the after-tax charge related to development of the KC-46A military tanker. It also raised its full-year profit forecast, as it reaps gains from faster production that is driving jetliner deliveries to record levels.

Chipmaker Results

Broadcom Corp. climbed 0.1 percent. The chipmaker reported earnings that surpassed estimates.
Juniper dropped 10 percent. The network-infrastructure company gave a forecast for third-quarter revenue and profit that fell short of analysts’ estimates amid a slowdown in sales of networking equipment to phone companies.
Xilinx Inc. (XLNX) tumbled 15 percent for the biggest drop in the S&P 500. The maker of microprocessors use in phone networks said it expects sales to remain little changed or fall as much as 4 percent in the quarter through September.