Inside Financial Markets

U.S. Stocks Rise as Investors Weigh Earnings, Home Data

US stocksU.S. Stocks Rise as Investors Weigh Earnings, Home Data

U.S. stocks rose, as monthly flows into equity exchange-traded funds reached a five-year high, after housing data and earnings from companies including McDonald’s Corp. fueled speculation stimulus would continue.

Financial companies climbed the most among 10 industries in the Standard & Poor’s 500 Index as Bank of America Corp. added 1.2 percent. Newmont Mining Corp. jumped 5.8 percent, leading gains among gold producers, as the metal’s price surged the most in a year. McDonald’s slid 2.7 percent after revenue missed forecasts. Yahoo (YHOO:US) Inc. dropped 4.3 percent after saying activist investor Daniel Loeb is leaving the board. Homebuilders fell, with D.R. Horton Inc. losing 2.2 percent, as sales of previously owned houses unexpectedly dropped in June.

The S&P (SPX) 500 rose 0.2 percent to 1,695.53 at 4 p.m. in New York, extending a record. The Dow Jones Industrial Average added 1.81 points, or less than 0.1 percent, to 15,545.55. About 5.2 billion shares traded hands on U.S. exchanges today, 19 percent below the three-month average.

“The earnings reflect a growing economy, but not a robust economy, not a runaway economy,” John Carey, a fund manager at Boston-based Pioneer Investment Management Inc., said by telephone. His firm oversees $211.5 billion. “There was concern that the economy may be doing a little better than the Fed was estimating and that might lead to an earlier tapering. Now with fairly modest economic growth and slow earnings growth, I don’t think people are going to be as worried about the tapering.”

Bull Market

The S&P 500 rallied 0.7 percent last week to a record, after better-than-forecast earnings and Federal Reserve Chairman Ben S. Bernanke said the central bank remains flexible about the duration of its asset-purchase program. Fed stimulus has helped fuel a surge in stocks worldwide, with the S&P 500 jumping 151 percent from its March 2009 low.

Investors have increasingly turned to stocks this month, as U.S. equity exchange-traded funds are getting money at the fastest rate since September 2008. After adding $10.2 billion to ETFs last week, the July total stands at $29.7 billion, according to data compiled by Bloomberg. Mutual funds that invest in U.S. equities had $4.55 billion of inflows during the week through July 10, ending seven consecutive weeks of withdrawals.

Individuals have 69 percent of their assets in mutual funds, almost a percentage point more than the average since 1992 and four points more than in 2012, Goldman Sachs Group Inc. said in a note to clients. Investors are demonstrating the “strongest risk appetite in five years,” according to the note dated July 19.

‘Active’ Reengagement

“What we’ve seen since June is market participants reengage pretty actively,” Arvin Soh, a New York-based portfolio manager with GAM, said by phone. His firm has more than $48 billion under management. “We’re off to a good start in the earnings season. Confidence is pretty high. Certainly, if you were say to say ‘do we know of many people that are bearish right now?’ Absolutely not.”

Data today showed purchases of previously owned houses fell 1.2 percent to a 5.08 million annualized rate last month, according to the National Association of Realtors. The median forecast of 79 economists surveyed by Bloomberg called for a 5.26 million pace. The pace of the demand was the second strongest since November 2009 following May’s downwardly revised 5.14 million rate.

In Asia, Japanese election results from the weekend strengthen Prime Minister Shinzo Abe’s ability to carry out his policy of monetary easing, fiscal stimulus and deregulation.

Broad Rally

The broadest rally in U.S. stocks since at least 1990 has lifted shares of everything from the smallest companies to the biggest banks, signaling the bull market for America’s largest corporations will last at least until the end of the year, if history is a guide.

The S&P 500’s advance to a record last week coincided with highs in the Russell 2000 Index (RTY) of smaller companies, the Dow Jones Transportation Index, the S&P 500 Financials Index and a gauge of economically sensitive equities overseen by Morgan Stanley. Since 1990, the S&P 500 has gained for six months on average after those measures peaked, according to data compiled by Bloomberg.

While bears say the breadth shows indiscriminate buying just as profit growth slows and the Fed prepares to curtail stimulus, gains across stock measures have proved an accurate forecaster of performance. In four market tops during the last 23 years, small-cap stocks and the cyclical gauge never peaked after the S&P 500.


Sanie Khan

Sanie Khan holds a deep knowledge of the financial markets in Pakistan. Based in Karachi, he has over 20 years of hands-on management experience in financial technologies and managing operations in the financial sector. He was the General Manager at the Pakistan Stock Exchange (PSX) for 17 years. He along-with senior members of Exchange

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Inside Financial Markets was a joint publication of Pakistan Stock Exchange (PSX)and Society of Technical Analysts Pakistan (STAP)