BLBG: Dow Set For Longest Weekly Gain Since January On Europe
The Dow Jones Industrial Average (INDU) rose, poised for its longest weekly gain since January, on bets European leaders will act to ease the region’s debt crisis.
Merck & Co. (MRK) and Amgen Inc. climbed at least 3.1 percent as earnings at the health-care (S5HLTH) companies beat forecasts. Expedia (EXPE) Inc. surged 27 percent as the online travel company raised its dividend. Facebook Inc. (FB) tumbled 14 percent to a record low after its first earnings report as a public company showed a slower sales gain. Starbucks Corp. (SBUX) fell 11 percent as the largest coffee-shop chain forecast profit that trailed estimates.
The Standard & Poor’s 500 Index added 1.1 percent to 1,374.56 at 11 a.m. New York time, gaining 2.7 percent in two days. The Dow rose 103.11 points, or 0.8 percent, to 12,991.04, the highest on a closing basis since May. Both indexes are on pace for a third weekly rally. Trading in S&P 500 (SPX) companies was up 10 percent from the 30-day average at this time of day.
“There’s been a lot of rhetoric as far as opening up the checkbook for whatever needs to be done to stabilize the euroland,” Michael Mullaney, who helps manage $9.5 billion as chief investment officer at Fiduciary Trust in Boston, said in a phone interview. “It’s a giant deal if they actually do what they say they are prepared to do. They’ve got to go and do what the Fed did. They’ve got to buy bonds.”
Global stocks rose as German Chancellor Angela Merkel and French President Francois Hollande said their countries are “bound by the deepest duty” to keep the euro area intact and they will do “everything” necessary to protect the currency. Le Monde reported the European Central Bank is preparing to buy debt in the secondary market to be followed by purchases in the primary market by government-financed bailout funds.
Economic Data
The U.S. economy expanded at a slower pace in the second quarter as a softening job market prompted Americans to curb spending. Gross domestic product rose at a 1.5 percent annual rate after a revised 2 percent gain in the prior quarter. The median forecast of economists surveyed by Bloomberg News called for a 1.4 percent increase. The Thomson Reuters/University of Michigan final index of U.S. consumer sentiment for July fell to 72.3 from 73.2 at the end of last month.
Cooling growth makes it harder to reduce unemployment, helping explain why Federal Reserve Chairman Ben S. Bernanke told Congress last week that policy makers stand ready with more stimulus if needed.
Stocks rose yesterday, with the S&P 500 rebounding from a four day drop, as ECB President Mario Draghi pledged to defend the euro. Better-than-estimated corporate earnings also helped pace gains in stocks. About 72 percent of the 290 S&P 500 companies which reported second-quarter results beat estimates, according to data compiled by Bloomberg.
Merck, Amgen
Health-care companies rallied the most among 10 industry groups in the S&P 500. Merck gained 3.1 percent to $44.68. Led by its diabetes franchise, sales of Merck’s top drugs rose almost across the board, and Merck said 18 percent of revenue came from emerging markets.
Amgen (AMGN), the world’s largest biotechnology company, advanced 3.4 percent to $81.98. Sales of the rheumatoid arthritis treatment Enbrel and Prolia, an osteoporosis drug, generated higher sales that beat analysts’ estimates for the quarter.
Gilead Sciences Inc. (GILD) added 5.5 percent to $54.52. It plans to start a combination study of two drugs in a single pill to treat hepatitis C by the end of the year, putting it on track to request U.S. regulatory approval for the medicine in 2014.
Expedia surged 27 percent to $58.16. The company raised its dividend to 13 cents from 9 cents a share.
Arch Coal Inc. (ACI) climbed 11 percent to $5.83. The fourth- largest U.S. producer of the fuel reported second-quarter results that surpassed analysts’ estimates.
Ugg Shoes
Deckers Outdoor Corp. (DECK) rose 4.9 percent to $44.21. The maker of the Ugg shoe brand posted a quarterly loss that was smaller than analysts’ projected and expanded a stock buyback program.
Facebook tumbled 14 percent to $23.07, 39 percent below its initial public offering price of $38. Executives led by Chief Executive Officer Mark Zuckerberg, addressing analysts for the first time since the company’s May 17 IPO, issued no growth forecasts and said little else to reassure investors who fret that the company is overvalued.
Starbucks lost 11 percent to $46.80. The company lowered its forecast for fourth-quarter profit to as much as 45 cents a share from a previous projection for as much as 47 cents. Analysts estimated 48 cents, on average.
Newmont Mining Corp. (NEM) slid 5 percent to $43.81. The largest U.S. gold producer reported second-quarter profit that missed analysts’ estimates as costs rose faster and production was lower than projected.
Legg Mason
Legg Mason Inc. (LM) dropped 3.5 percent to $24.24. The money manager with 19 straight quarters of redemptions posted its first quarterly loss since the start of 2009 because of costs to restructure debt.
CA Inc. (CA) slumped 8.5 percent to $24.07. The maker of software for managing information technology cut its annual revenue forecast. Chief Executive Officer Bill McCracken said on a conference call that a sluggish economy and a business reorganization led to a slow start for the year.
Amarin Corp. (AMRN) lost 8.9 percent to $13.95. U.S. approval for the company’s first product, a drug to combat high levels of blood fat that can lead to stroke and heart attack, included limits on its use that may have disappointed investors.
Efforts by General Motors Co. and other companies to reduce pension obligations to employees may be essential for them to prosper worldwide, according to Tobias Levkovich, Citigroup Inc.’s chief U.S. equity strategist.
Companies in the S&P 500 had a record $354.7 billion deficit in pension funds at the end of last year, according to figures compiled by S&P. The shortfall widened by 45 percent from 2010.
Larger Gap
The larger gap reflects lower returns on U.S. stocks, Levkovich wrote two days ago in a report that cited S&P’s data. The S&P 500’s total return, including dividends, fell last year to 2.1 percent from 15 percent in 2010 and 26 percent in 2009.
“Many U.S. corporations have been attempting to address pension costs recently,” the New York-based strategist wrote. “This may be the key for the future health” of their business, he wrote, because many international competitors aren’t saddled with comparable expenses.
GM, the largest U.S. automaker, and Ford Motor Co. (F), the second biggest, have offered buyouts of payments to a total of 140,000 salaried retirees. Their pension plans were underfunded by a combined $40.8 billion at the end of 2011.
To be sure, pension-calculation changes will ease the financial burden on these companies and others that have plans, the report said. President Barack Obama signed legislation this month that lets companies use an average interest rate for the past 25 years, rather than two years, in determining payments.
To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net
To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net
