US stocks halt five-day drop after Alcoa’s unexpected earnings

April 11 (Bloomberg) -- U.S. stocks advanced, halting a five-day decline for the Standard & Poor’s 500 Index, after Alcoa Inc. reported an unexpected first-quarter profit.

Alcoa, the first company in the Dow Jones Industrial Average to announce quarterly results, climbed 6.2 percent. Bank of America Corp. and JPMorgan Chase & Co. added at least 2.4% to pace gains in financial shares. A measure of 11 homebuilders in S&P indexes jumped 4.4% as Wells Fargo & Co. said a survey of sales managers showed 63% of the respondents reported better-than-expected orders.

The S&P 500 increased 0.7% to 1,368.45 at 3:17 p.m. New York time. The Dow average advanced 91.66 points, or 0.7%, to 12,807.59 today. The Russell 2000 Index of small companies climbed 1.1% to 792.68. The Chicago Board Options Exchange Volatility Index slumped 2.1% to 19.97, after yesterday rallying for a record eighth day.

“Alcoa helped dampen the dark mood in the market,” said Frederic Dickson, who helps oversee $28 billion as chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon. “It’s always nice to see the first company out of the box with an earnings surprise. It’s time to see how this progresses and reassess when to put some money back in.”

Almost $800 billion was erased from U.S. equity values ahead of the first-quarter earnings season. The S&P 500 fell 4.3% over the past five days on concern about Europe’s debt crisis and the U.S. jobs market. The decline drove the gauge to about 14 times reported earnings yesterday, below the average since 1954 of 16.4.

Earnings Season

Today’s gain extended this year’s rally in the S&P 500 to 8.8% as investors bought stocks amid better-than- estimated economic and corporate data. While S&P 500 per-share profit growth slowed to 0.8% during the first three months of the year from 4.9% in the fourth quarter, it will accelerate to 8.3% during all of 2012, according to analyst estimates compiled by Bloomberg.

Analysts’ estimates for S&P 500 earnings growth in the first quarter have declined from 4.1% in January, Bloomberg data showed. For Lawrence Creatura at Federated Investors Inc., earnings expectations are still low and profit surprises may drive the market higher.

“This isn’t a phantom bounce,” Creatura, who helps oversee $369.7 billion as a Rochester, New York-based fund manager at Federated, said in a telephone interview. “It seems reasonable to expect positive surprises as we move through the earnings season. Management teams have done a good job of keeping expectations contained.”

Alcoa Rallies

Alcoa climbed 6.2% to $9.90. The earnings were “driven by higher-than-expected profitability from every operating segment,” Brian Yu, an analyst at Citigroup Inc. in San Francisco, said in a note. “Good cost control likely played a major role.” The stock dropped 48% in the 12 months through yesterday, the biggest decline in the Dow.

A rally in Alcoa shares following its earnings reports has been an indicator of gains for the S&P 500, according to Ryan Detrick, senior technical strategist at Schaeffer’s Investment Research in Cincinnati. Since 2005, the gauge has risen an average 4% in the three-month period that followed a positive reaction to Alcoa’s earnings, he said.

Financial shares had the biggest gain in the S&P 500 among 10 industries, rallying 1.5 percent. Bank of America rose 3.6% to $8.85. JPMorgan jumped 2.4% to $44.01. Investors will get a first look at banks results when JPMorgan and Wells Fargo kick off earnings, about an hour apart, on April 13. Citigroup Inc. is set to announce results April 16, followed by Goldman Sachs Group Inc., Bank of America and Morgan Stanley.

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