S&P 500 extends record amid stimulus bets as Google surges

United Healthcare extends losses

U.S. stocks rose, giving the Standard & Poor’s 500 Index its best weekly gain since July, as results from Google Inc. topped estimates and speculation grew that the Federal Reserve will delay cutting monetary stimulus.

Google rallied 14% to surpass $1,000 a share for the first time after reporting third-quarter sales that beat analysts’ projections. General Electric Co. added 3.5% as demand for industrial products boosted earnings. Chipotle Mexican Grill Inc. surged 16% to a record as customer traffic rose. UnitedHealth Group Inc. slumped 3.7%, extending yesterday’s 5.1% slide after the insurer reported sales that fell short of analyst estimates.

The S&P 500 added 0.7% to 1,744.50 at 4 p.m. in New York, extending an all-time high. The gauge has rallied 2.4 in the past five days, for its biggest weekly advance since July 12. The Dow Jones Industrial Average added 28 points, or 0.2%, to 15,399.65. About 6.6 billion shares changed hands on U.S. exchanges, 12% higher the three-month average.

“People are looking at earnings but they’re also looking at what they think is going to happen next,” Sarah Hunt, an associate fund manager and analyst who helps oversee $4.5 billion at Purchase, New York-based Alpine Woods Capital Investors LLC,said in a phone interview. “After this political problem no one is expecting this to happen again in January. People are just looking for a little bit of a better economic backdrop to continue what’s been a pretty decent environment for stocks.”

Taper estimates

The S&P 500 closed yesterday at a record of 1,733.15 after Congress ended the standoff over the federal budget and borrowing authority. The 16-day government shutdown government reduced growth by 0.3 of a percentage point this quarter, economists said in a Bloomberg News survey.

The slower growth and delayed reporting of economic data will prevent Fed policy makers from paring the monthly pace of asset buying until their March 18-19 meeting, according to the median of 40 responses by economists in the survey conducted yesterday and today. Economists had expected the central bank to reduce purchases to $80 billion last month, according to a Bloomberg survey before the September meeting.

The Fed stimulus has helped propel the S&P 500 up by more than 150% from its March 2009 low. The gauge has surged 22% this year and jumped to its previous intraday record of 1,729.86 on Sept. 19, a day after the central bank unexpectedly delayed tapering. 

Data delay

Investors will have to wait until Oct. 21 to get the next snapshot of economic activity, when data on sales of existing homes is released. The September U.S. jobs report, originally scheduled to be released on Oct. 4, will be issued on Oct. 22. The report was delayed by the partial shutdown. October employment data will come out on Nov. 8, rather than Nov. 1.

A report today from China showed the world’s second-largest economy grew by 7.8% in the July-September period, accelerating for the first time in three quarters, as Premier Li Keqiang spurred factory output and investment. Industrial production advanced in September by 10.2% as predicted by economists.

“The numbers out of China are supporting markets today after recent disappointing data,” Plassard said. “While sentiment is still positive, the rally may be short-lived as the debt-ceiling issue will come back to haunt us again soon.”

In the absence of U.S. economic reports, investors have been watching third-quarter corporate earnings. Thirteen S&P 500 companies released results for the period today. Analysts have raised their forecasts for profits and now forecast an average increase of 2.5% for all companies in the gauge, according to estimates compiled by Bloomberg today. That compares with an expected gain of 1.4% as of Oct. 11. 

Earnings scorecard 

Earnings at the 100 companies that have reported so far grew by an average of 4.4%, while sales gained 2%. Some 70% of the companies have topped analysts’ profit estimates, while 56% have beaten on sales.

Gains in the S&P 500 have averaged 1.1% in the first four weeks of earnings seasons since 2003, according to data compiled by Bloomberg. That’s about twice the usual four-week gain in the index.

“My concern would be on a very short term basis that some companies are going to use the drama of the past couple of weeks as a pretext to lower the bar,” Matthew Kaufler, a portfolio manager at Federated Investors Inc. in Rochester, New York, said by phone. His firm oversees $363.8 billion. “Even if there is some weakness to forward guidance, I think that’s going to get shrugged off and we’re going to finish the year pretty strong.”

Volatility sinks

The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options prices known as the VIX, sank 3.3% to 13.04 today, the lowest since August 14. The gauge plunged 17% in the past five days for the biggest weekly decline since March.

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