U.S. stocks rise as earnings top estimates before Fed meeting

U.S. stocks rose, with the Standard & Poor’s 500 Index reaching a third straight record, as earnings from Pfizer Inc. to Xylem Inc. beat estimates and data indicating slower growth fueled bets the Federal Reserve will maintain stimulus.

Pfizer, the world’s biggest drugmaker, jumped 1.7% as the company cut costs and increased drug sales. Masco Corp., which makes faucets and kitchen and bath cabinets, rose 3.5% as its sales topped forecasts. Xylem Inc. surged 12% after the water company whose pumps helped clean tunnels in New York flooded by Hurricane Sandy raised its annual earnings forecast.

The S&P 500 rose 0.5% to 1,770.50 at 2:56 p.m. in New York. The Dow Jones Industrial Average gained 101.95 points, or 0.7%, to 15,670.88, within 10 points of its all-time closing high. Trading in S&P 500 stocks was in line with the 30- day average at this time of day.

“It still seems that the Fed has created this good news is bad news, bad news is good news scenario,” Randy Bateman, who oversees $15 billion as chief investment officer of Huntington Asset Advisors in Columbus, Ohio, said by telephone. “The anticipation is that the Fed will retain its purchasing of $85 billion in monthly Treasury and mortgage securities, which is going to continue to help the housing market. That will be taken fairly well by the market.”

The S&P 500 climbed in 12 of the past 14 sessions through yesterday, as companies beat estimates in the current earnings reporting season and signs of slower economic growth fueled bets the Fed will maintain stimulus measures after its two-day meeting that started today. The rally has pushed the index up 24% this year, leaving it poised for the best annual gain in a decade.

Taper Bet 

The 16-day government shutdown earlier this month took at least $24 billion out of the economy and will spur the Fed to wait until March to taper, a Bloomberg survey showed this month. The central bank’s policy makers convene today and tomorrow.

Data today showed retail sales dropped 0.1% last month, restrained by the biggest decrease at auto dealers since October 2012. Wholesale prices unexpectedly fell in September as food costs retreated. Inflation has been running below the Fed’s 2% objective in the near-term, giving policy makers room to maintain monetary stimulus.

A separate report showed confidence among U.S. consumers declined in October by the most since August 2011 as the budget impasse and debt-ceiling negotiations in Washington took a toll on outlooks.

Weak Data

Weaker-than-forecast data yesterday on factory output and sales of previously owned homes added to concern that growth slowed in the weeks before the shutdown. Home prices in 20 U.S. cities rose in August from a year ago by the most since February 2006, the S&P/Case-Shiller index indicated today.

The Fed’s stimulus has helped propel the S&P 500 up more than 160% from a 12-year low in 2009. While the rally lifted equity valuations to a four-year high, with the index trading at 15.9 times estimated operating earnings, that’s still below the multiples at the market’s two previous peaks, when the ratio reached 16.5 in October 2007 and 25.7 in March 2000, data compiled by Bloomberg show.

Some 39 members of the S&P 500 release results today, including Pfizer Inc. and Goodyear Tire & Rubber Co. Earnings for the broad equity gauge probably increased 3.7% in the third quarter as sales climbed 2.4%, according to analysts’ estimates compiled by Bloomberg. Profits have grown by an average of 5.7% among the 282 companies that have reported so far, while sales have gained 3.5%.

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