August 24, 2017

Market Rises for Fourth Straight Day on Hope Earnings Will Exceed Forecasts

The stock market rose for a fourth straight session on Tuesday as investors seemed optimistic that companies would be able to surpass relatively low forecasts for the earnings season, possibly prolonging the rally.

The recent move higher has taken the Standard Poor’s 500-stock index close to its nominal high, reached in May, and the Nasdaq composite index to its highest point since November 2000.

The market’s gains also suggest that investors are becoming more comfortable with the prospect of the Federal Reserve slowing its economic stimulus, which has been a major driver of the stock rally this year.

For the most part, analysts are expecting second-quarter results to be soft with weak sales, but expectations are for a pickup later in the year. Even so, investors are starting to suggest earnings expectations may have been too low.

“We think we have the potential once again for an earnings season where expectations are a little too low, and when the earnings finally do come out, we could have a little bit of an upside surprise,” said Ryan Detrick, senior technical strategist at Schaeffer’s Investment Research.

Analysts predict earnings at S. P. 500 companies will grow 2.9 percent in the second quarter from a year earlier, well below the 6.1 percent that was forecast in April, according to Thomson Reuters.

Forecasts for growth in the first quarter were similarly revised lower to as little as 1.5 percent. The earnings season beat that with growth of 5.4 percent.

The Dow Jones industrial average gained 75.65 points on Tuesday, or 0.50 percent, to end at 15,300.34. The S. P. 500 rose 11.86 points, or 0.72 percent, to 1,652.32, just 1 percent below its record closing high of 1.669.16 on May 21. The Nasdaq climbed 19.43 points, or 0.56 percent, to close at 3,504.26.

Analysts “have lowered the expectations enough that even if the numbers aren’t materially better, the outlooks will be more favorable than what is the consensus now,” said Alan B. Lancz, president of Alan B. Lancz Associates.

The earnings calendar remains light until Friday when JPMorgan Chase and Wells Fargo are set to report results.

Volatility has plunged in recent weeks on waning worries that the Federal Reserve was moving to reduce its $85 billion a month in bond purchases, which aim to stimulate the economy. The market volatility index, or VIX, Wall Street’s main indicator of investor fear, has tumbled more than 30 percent since late June. On Tuesday, it fell 2.9 percent to end at 14.35.

“It almost seems like the market is starting to get more comfortable with the fact that the Fed could taper,” Mr. Detrick said.

“We’re in a different area from where we would have been five or six weeks ago, where strong economic data was met with selling,” he said. “Now good news is actually being perceived as good news.”

The Fed will release the minutes from its June policy meeting on Wednesday afternoon, possibly providing clues into the timing of a possible reduction of stimulus measures.

Among the stocks on the move, FedEx climbed $4.32, or 4.4 percent, to $103.15 on speculation that the billionaire hedge fund manager William Ackman would make a big investment.

Health Management Associates jumped $1.28, or 8.3 percent, to $16.75 after a report that it had attracted takeover interest from Community Health Systems and other rivals.

Intuitive Surgical shares plunged $80.78, or 16.2 percent, to $419.30 after it said it expected second-quarter revenue below analysts’ expectations.

In the bond market, interest rates were stable. The price of the Treasury’s 10-year note was stable at 92 11/32 and its yield was stable at 2.64 percent.

Article source: http://www.nytimes.com/2013/07/10/business/daily-stock-market-activity.html?partner=rss&emc=rss

Gasoline Lifts U.S. Producer Prices

The Labor Department said on Tuesday its seasonally adjusted index for prices received by farms, factories and refineries, increased 0.8 percent after being flat in August. Economists had expected prices to increase 0.2 percent.

Stripping out volatile food and energy, wholesale prices rose 0.2 percent after inching up 0.1 percent in August.

“Slower growth abroad suggests further moderation in demand for raw materials heading into the fourth quarter, which will likely translate into inflation moderation,” said Lindsey Piegza, an economist at FTN Financial in New York.

Prices for U.S. government debt trimmed gains on the data.

The dollar briefly pared gains against the euro, while stocks on Wall Street were lower as investors focused on Moody’s warning on France’s credit rating and slow growth in China.

Gasoline prices jumped 4.2 percent, the largest gain since March, after dropping 1 percent in August.

Economists, however, dismissed the spike in gasoline, saying it was attributed to how the data was adjusted to try to smooth seasonal volatility.

“It probably did not point to a new trend to higher inflation,” said Gary Thayer, chief macro strategist at Wells Fargo Advisors in St. Louis, Missouri.

But some said there was a risk that data on Wednesday could show an upside surprise in September consumer prices.

The consumer price index likely rose 0.3 percent last month, according to a Reuters survey, after increasing 0.4 percent in August.

INFLATION SEEN CONTAINED

The strong rise in wholesale prices last month is unlikely to spark a broad increase in inflation pressures given the weak economic environment.

It will probably have little impact on the Federal Reserve, which focuses on core consumer inflation, as it weighs further options to help the anemic recovery and pull down an unemployment rate stuck above 9 percent.

Pressure on the U.S. central bank for further monetary stimulus has lessened in recent weeks as retail sales and the trade balance data suggested economic growth accelerated in the third quarter after the second quarter’s tepid 1.3 percent annual rate.

Economists estimate gross domestic product grew at an annual pace of anywhere between 2.3 percent and 2.7 percent in the third quarter.

The economy’s improving tone is starting to filter through to the ailing housing market. Home-builder sentiment rose this month to its highest level in nearly 1-1/2 years, the National Association of Home Builders said in a separate report.

The NAHB/Wells Fargo Housing Market index rose to 18, the highest level since May 2010, from 14 in September. Economists had expected the index to only rise to 15.

Still it remained below 50, meaning more builders view market conditions as poor.

Last month, food prices rose 0.6 percent, slowing from a 1.1 percent rise in August.

In the 12 months to September, producer prices increased 6.9 percent, accelerating from August’s 6.5 percent advance.

Wholesale prices outside of food and fuel were bumped up by a 0.6 percent rise in light motor trucks — accounting for a third of the rise in the core PPI measure. Light trucks had risen 0.1 percent in August.

Passenger car prices fell 0.5 percent after slipping 0.4 percent in August. Disruptions to production wrought by the March earthquake in Japan caused car prices to spike early this year.

In the 12 months to September, core producer prices rose 2.5 percent after increasing by a similar margin the prior month. The rise was above economists’ expectations for a 2.4 percent advance.

(Additional reporting by Ellen Freilich in New York; Editing by Neil Stempleman)

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