Wall Street bounces back after sell-off; results a boost

NEW YORK (Reuters) - Stocks climbed on Tuesday, recovering a day after the market's biggest sell-off since November, as stronger-than-expected earnings brightened the profit picture.

Dell Inc's stock rose after the world's No. 3 computer maker agreed to be taken private in a $24.4 billion deal, the largest leveraged buyout since the 2008-2009 financial crisis. The stock gained 1.1 percent to $13.42.

All 10 S&P sectors were higher, and the S&P 500 and Nasdaq gained more than 1 percent.

The market's bounce follows a sell-off on Monday that gave the S&P 500 its biggest percentage decline since mid-November. The benchmark remains up 6 percent since the start of the year and is less than 4 percent away from its all-time closing high of 1,565.15 from October 2007.

Analysts said fourth-quarter results have been among factors helping to boost stocks. On Tuesday, Archer Daniels Midland reported revenue and adjusted fourth-quarter earnings that beat expectations, boosted by strong global demand for oilseeds. Shares rose 3.3 percent to $29.38.

"There's not a huge upside surprise by any means, but we're definitely seeing slightly better-than-expected earnings overall," said Bryant Evans, portfolio manager at Cozad Asset Management, in Champaign, Illinois.

The Dow Jones industrial average <.dji> was up 99.22 points, or 0.71 percent, at 13,979.30. The Standard & Poor's 500 Index <.spx> was up 15.58 points, or 1.04 percent, at 1,511.29. The Nasdaq Composite Index <.ixic> was up 40.41 points, or 1.29 percent, at 3,171.58.

The market shot higher at the start of the year after U.S. lawmakers were able to come to a last-minute agreement to avoid a national "fiscal cliff," but questions on spending cuts remain.

President Barack Obama on Tuesday urged Congress to pass a small package of spending cuts and tax reforms. Though the plan was quickly rebuffed by Republican leaders, investors are looking for an agreement.

"I think there's some hopefulness out there that a reasonable compromise will be made," Evans said.

Also in earnings, Estée Lauder Cos Inc reported a higher quarterly profit and raised its full-year profit forecast. The stock rose 6 percent to $64.71.

With results in from more than half of the S&P 500 companies, 69 percent have beaten profit expectations, compared with the 62 percent average since 1994 and the 65 percent average over the past four quarters. Sixty-six percent of companies have beaten on revenue.

Fourth-quarter earnings for S&P 500 companies are expected to rise 4.5 percent, according to the data, above the 1.9 percent forecast at the start of earnings season.

On the down side, McGraw-Hill shares slumped 10.7 percent to $44.92 after the U.S. Justice Department filed a civil lawsuit seeking $5 billion over mortgage bond ratings. Standard & Poor's, a McGraw Hill unit, was accused of inflating ratings and understating risk out of a desire to gain more business from investment banks.

On Monday, McGraw-Hill stock suffered its worst one-day decline since the 1987 market crash.

Volume was roughly 6.7 billion shares traded on the New York Stock Exchange, the Nasdaq and the NYSE MKT, compared with the 2012 average daily closing volume of about 6.45 billion.

Advancers outpaced decliners on the NYSE by nearly 11 to 4 and on the Nasdaq by about 3 to 1.

(Editing by Kenneth Barry and Nick Zieminski)

Read More..

S&P 500 posts worst day since November; McGraw-Hill shares sink

NEW YORK (Reuters) - Stocks slid on Monday, giving the S&P 500 its worst day since November, as renewed worries about the euro zone crisis caused the market to pull back from recent gains.

Shares of McGraw-Hill shed 13.8 percent to $50.30, their worst daily percentage decline since the October 1987 market crash, after news the U.S. Justice Department plans to sue Standard & Poor's, a unit of McGraw-Hill, over its mortgage bond ratings. It would be the first such federal action against a credit rating agency related to the recent financial crisis.

Chevron and Wal-Mart were among the biggest drags on the Dow after analyst downgrades, and all 10 S&P 500 sectors were lower. The losses follow Friday's market climb that left the S&P 500 at a five-year high and the Dow above 14,000.

"The market is extended and due for a pullback. I think people are looking for an excuse to make sales, and there (is) the concern coming from Europe," said Michael James, senior trader at Wedbush Morgan in Los Angeles.

Spanish and Italian bond yields rose, renewing worries about the euro zone's sovereign debt crisis. Spain's prime minister faced calls to resign over a corruption scandal, while a probe of alleged misconduct involving an Italian bank was expected to widen three weeks before a national election.

Adding to market pressure, data from the U.S. Commerce Department showed overall factory orders for December were below economists' expectations.

The Dow Jones industrial average <.dji> was down 129.71 points, or 0.93 percent, at 13,880.08. The Standard & Poor's 500 Index <.spx> was down 17.46 points, or 1.15 percent, at 1,495.71. The Nasdaq Composite Index <.ixic> was down 47.93 points, or 1.51 percent, at 3,131.17.

With 18.7 billion shares traded, it was the busiest day on record for McGraw-Hill shares. Shares of ratings agency Moody's Corp fell 10.7 percent at $49.45, their worst one-day drop since August 2011.

The benchmark S&P 500 rose on Friday, leaving it roughly 60 points away from its all-time intraday high of 1,576.09, while the Dow's march above 14,000 was the highest for the index since October 2007.

The S&P index remains up about 5 percent for the year, with nearly half of the gains coming after U.S. legislators temporarily sidestepped the "fiscal cliff" of automatic tax increases and spending cuts.

The CBOE Volatility index VIX <.vix>, Wall Street's so-called fear gauge, jumped 13.7 percent.

Chevron dipped 1.1 percent to $115.20 after UBS cut its rating to neutral, while Wal-Mart Stores Inc shed 1.2 percent to $69.63 after JP Morgan lowered its rating on the world's largest retailer and reduced its price target.

Shares of household products company Clorox rose 0.7 percent to $79.72 after quarterly profit beat analysts' estimates as a severe flu season boosted sales of disinfecting wipes.

According to Thomson Reuters data, of the 256 companies in the S&P 500 that have reported earnings through Monday morning, 68.4 percent have reported earnings above analyst expectations, compared with the 62 percent average since 1994 and the 65 percent average over the past four quarters.

S&P 500 fourth-quarter earnings are expected to rise 4.4 percent, according to the data. That estimate is above the 1.9 percent forecast at the start of earnings season, but well below the 9.9 percent forecast on October 1.

In deal news, software maker Oracle Corp agreed to buy network equipment company Acme Packet Inc for $1.7 billion net of cash. Shares of Oracle were down 3 percent at $35.13 while Acme Packet shot up 23.7 percent to $29.59.

Shares of Herbalife Ltd ended up 1.3 percent at $35.54, recovering its losses ahead of the close. The New York Post reported the seller of weight loss products is facing a probe by the Federal Trade Commission.

Volume was roughly 6.3 billion shares traded on the New York Stock Exchange, the Nasdaq and the NYSE MKT, compared with the 2012 average daily closing volume of about 6.45 billion.

Decliners outpaced advancers on the NYSE by nearly 4 to 1 and on the Nasdaq also by about 4 to 1.

(Editing by Kenneth Barry and Nick Zieminski)

Read More..

"Great Rotation"- A Wall Street fairy tale?

NEW YORK (Reuters) - Wall Street's current jubilant narrative is that a rush into stocks by small investors has sparked a "great rotation" out of bonds and into equities that will power the bull market to new heights.

That sounds good, but there's a snag: The evidence for this is a few weeks of bullish fund flows that are hardly unusual for January.

Late-stage bull markets are typically marked by an influx of small investors coming late to the party - such as when your waiter starts giving you stock tips. For that to happen you need a good story. The "great rotation," with its monumental tone, is the perfect narrative to make you feel like you're missing out.

Even if something approaching a "great rotation" has begun, it is not necessarily bullish for markets. Those who think they are coming early to the party may actually be arriving late.

Investors pumped $20.7 billion into stocks in the first four weeks of the year, the strongest four-week run since April 2000, according to Lipper. But that pales in comparison with the $410 billion yanked from those funds since the start of 2008.

"I'm not sure you want to take a couple of weeks and extrapolate it into whatever trend you want," said Tobias Levkovich, chief U.S. equity strategist at Citigroup. "We have had instances where equity flows have picked up in the last two, three, four years when markets have picked up. They've generally not been signals of a continuation of that trend."

The S&P 500 rose 5 percent in January, its best month since October 2011 and its best January since 1997, driving speculation that retail investors were flooding back into the stock market.

Heading into another busy week of earnings, the equity market is knocking on the door of all-time highs due to positive sentiment in stocks, and that can't be ignored entirely. The Standard & Poor's 500 Index <.spx> ended the week about 4 percent from an all-time high touched in October 2007.

Next week will bring results from insurers Allstate and The Hartford , as well as from Walt Disney , Coca-Cola Enterprises and Visa .

But a comparison of flows in January, a seasonal strong month for the stock market, shows that this January, while strong, is not that unusual. In January 2011 investors moved $23.9 billion into stock funds and $28.6 billion in 2006, but neither foreshadowed massive inflows the rest of that year. Furthermore, in 2006 the market gained more than 13 percent while in 2011 it was flat.

Strong inflows in January can happen for a number of reasons. There were a lot of special dividends issued in December that need reinvesting, and some of the funds raised in December tax-selling also find their way back into the market.

During the height of the tech bubble in 2000, when retail investors were really embracing stocks, a staggering $42.7 billion flowed into equities in January of that year, double the amount that flowed in this January. That didn't end well, as stocks peaked in March of that year before dropping over the next two-plus years.

MOM AND POP STILL WARY

Arguing against a 'great rotation' is not necessarily a bearish argument against stocks. The stock market has done well since the crisis. Despite the huge outflows, the S&P 500 has risen more than 120 percent since March 2009 on a slowly improving economy and corporate earnings.

This earnings season, a majority of S&P 500 companies are beating earnings forecast. That's also the case for revenue, which is a departure from the previous two reporting periods where less than 50 percent of companies beat revenue expectations, according to Thomson Reuters data.

Meanwhile, those on the front lines say mom and pop investors are still wary of equities after the financial crisis.

"A lot of people I talk to are very reluctant to make an emotional commitment to the stock market and regardless of income activity in January, I think that's still the case," said David Joy, chief market strategist at Columbia Management Advisors in Boston, where he helps oversee $571 billion.

Joy, speaking from a conference in Phoenix, says most of the people asking him about the "great rotation" are fund management industry insiders who are interested in the extra business a flood of stock investors would bring.

He also pointed out that flows into bond funds were positive in the month of January, hardly an indication of a rotation.

Citi's Levkovich also argues that bond investors are unlikely to give up a 30-year rally in bonds so quickly. He said stocks only began to see consistent outflows 26 months after the tech bubble burst in March 2000. By that reading it could be another year before a serious rotation begins.

On top of that, substantial flows continue to make their way into bonds, even if it isn't low-yielding government debt. January 2013 was the second best January on record for the issuance of U.S. high-grade debt, with $111.725 billion issued during the month, according to International Finance Review.

Bill Gross, who runs the $285 billion Pimco Total Return Fund, the world's largest bond fund, commented on Twitter on Thursday that "January flows at Pimco show few signs of bond/stock rotation," adding that cash and money markets may be the source of inflows into stocks.

Indeed, the evidence suggests some of the money that went into stock funds in January came from money markets after a period in December when investors, worried about the budget uncertainty in Washington, started parking money in late 2012.

Data from iMoneyNet shows investors placed $123 billion in money market funds in the last two months of the year. In two weeks in January investors withdrew $31.45 billion of that, the most since March 2012. But later in the month money actually started flowing back.

(Additional reporting by Caroline Valetkevitch; Editing by Kenneth Barry)

Read More..

Wall Street surges to five-year highs; Dow ends above 14,000

NEW YORK (Reuters) - Stocks rose to five-year highs on Friday, with the Dow closing above 14,000 for the first time since October 2007, after jobs and manufacturing data showed the economy's recovery remains on track.

The S&P touched its highest since December 2007 after a 5 percent gain in January, which was its best start to a year since 1997. The index is now just about 60 points away from its all-time intraday high of 1,576.09.

Employment grew modestly in January, with 157,000 jobs added. That was slightly below expectations, but Labor Department revisions showed 127,000 more jobs were created in November and December than previously reported.

Analysts attributed the market's robust showing so far this year partly to a deluge of cash flowing into equities.

Investors poured $12.7 billion into U.S.-based stock mutual funds and exchange-traded funds in the latest week, concluding the strongest four-week flows into stock funds since 1996, data showed on Thursday.

"There is a lot of money looking for a home, and people are finally deciding the bond market is done and moving money into equities," said Edward Simmons, managing director and partner at HighTower in Portland, Maine.

"I see the rotation (of assets) pushing the market up in the face of not-massive amounts of good news," he said. "People are overlooking the higher risk in equities."

Other reports released Friday showed the pace of growth in the U.S. manufacturing sector picked up in January to its highest level in nine months, U.S. consumer sentiment rose more than expected last month, while December construction spending also beat forecasts.

"All the data seems to keep pointing to a slowly, steadily improving economy," said Eric Kuby, chief investment officer at North Star Investment Management Corp in Chicago.

The Dow Jones industrial average <.dji> was up 149.21 points, or 1.08 percent, at 14,009.79. The Standard & Poor's 500 Index <.spx> was up 15.06 points, or 1.01 percent, at 1,513.17. The Nasdaq Composite Index <.ixic> was up 36.97 points, or 1.18 percent, at 3,179.10.

With the day's gains, major equity indexes rose five straight weeks.

More than 600 stocks on the NYSE and the Nasdaq combined hit 52-week highs on Friday, including Google which rose as high as $776.60, before closing at $775.60, up 2.6 percent.

Investors were also attuned to corporate earnings, with a trio of Dow components reporting profits that beat expectations.

Exxon Mobil ended flat at $90.04 after reporting results while Chevron added 1.2 percent to $116.50.

Drugmaker Merck & Co fell 3.3 percent to $41.83 after a cautious 2013 outlook.

Generic drugmaker Perrigo reported a better-than-expected second-quarter profit and its shares jumped 4.7 percent to $105.28.

Of the 252 companies in the S&P 500 that have reported earnings so far, 69 percent have exceeded expectations, according to Thomson Reuters data. That is a higher proportion than over the past four quarters and above average since 1994.

Overall, S&P 500 fourth-quarter earnings are estimated to have grown 4.4 percent, according to the data, up from a 1.9 percent forecast at the start of the earnings season but well below a 9.9 percent profit growth forecast on October 1.

Dell Inc gained 2.9 percent to $13.63 after sources said the company was nearing an agreement to sell itself to a buyout consortium led by its founder, Michael Dell, and private equity firm Silver Lake Partners.

(Reporting By Angela Moon; Editing by Kenneth Barry)

Read More..

Wall Street ends lower after Fed statement

NEW YORK (Reuters) - Stocks fell on Wednesday after the Federal Reserve said in its latest statement that economic growth had stalled but indicated the pullback was likely temporary.

Stocks were flat for most of the session prior to the Fed statement at the end of a two-day policy meeting. The Fed repeated its pledge to keep purchasing securities until employment improves substantially.

The statement followed data that showed the economy, as measured by gross domestic product, unexpectedly contracted in the fourth quarter. Economists stressed that the 0.1 percent contraction, caused partly by a plunge in government spending and lower business inventories, is not an indicator of recession.

"The unemployment rate is likely to fall below 6.5 percent next year, so the Fed may be raising interest rates as soon as mid-2014. The fiscal drag from the tax increases will be offset this quarter by rebuilding post-Sandy, so real GDP growth should still come in at 2 percent," said Kurt Karl, chief economist at Swiss Re.

The S&P 500 held above 1,500, seen by technical analysts as an inflection point that will determine the overall direction in the near term. The index is on track to post its best month since October 2011 and its best January since 1997.

"This is a very modest pullback after a steep run," said Paul Zemsky, head of asset allocation at ING Investment Management in New York.

"It is too soon for the Fed to start talking about the end of (their bond buying program). The economy needs stimulus to sustain this recovery."

Chesapeake Energy rose 6 percent to $20.11 a day after it said Aubrey McClendon would step down as chief executive. The company has had a tumultuous year in which a series of Reuters investigations triggered civil and criminal probes of the second-largest U.S. natural gas producer.

After the bell, shares of Facebook Inc fell 5.9 percent to $29.40 following the company's earnings announcement. Facebook said its revenue in the fourth quarter grew 40 percent year-on-year to $1.585 billion.

Both Boeing Co and Amazon.com shares gained after earnings beat expectations, continuing a trend this quarter of high-profile names advancing after results.

Amazon rose 4.8 percent to $272.76 and Boeing rose 1.3 percent to $74.59.

The Dow Jones industrial average <.dji> was down 44.00 points, or 0.32 percent, at 13,910.42. The Standard & Poor's 500 Index <.spx> was down 5.88 points, or 0.39 percent, at 1,501.96. The Nasdaq Composite Index <.ixic> was down 11.35 points, or 0.36 percent, at 3,142.31.

Thomson Reuters data showed that of the 192 companies in the S&P 500 that have reported earnings this season, 68.8 percent have been above analyst expectations, which is a higher proportion than over the past four quarters and above the average since 1994.

Research In Motion shares fell 12 percent to $13.78 after the company, which is changing its name to BlackBerry, unveiled a long-delayed line of smartphones in hopes of a comeback into a market it once dominated.

Giving the market extra support, private sector employment topped forecasts with the ADP National Employment report showing 192,000 jobs were added in January, higher than the 165,000 expectation.

(Reporting by Angela Moon; Editing by Kenneth Barry)

Read More..

Wall Street advances as defensive stocks extend rally

NEW YORK (Reuters) - Stocks advanced on Tuesday, led by defensive sectors, in a sign the cash piles recently moving into the market are being put to use by cautious investors to pick up more gains.

The S&P 500 is on track to post its best monthly performance since October 2011 and its best January since 1997 as investors poured $55 billion in new cash into stock mutual funds and exchange-traded funds in January, the biggest monthly inflow on record. [ID:nL1N0AX45Q] The Dow Jones industrial average has been flirting with 14,000, a level it hasn't seen since October 2007.

Shares of Amazon.com jumped nearly 7 percent in extended trade after the world's largest Internet retailer posted fourth-quarter revenue that jumped 22 percent to $21.27 billion. The stock closed down 5.7 percent at $260.35 in regular trading.

Among rising defensive shares, which are companies relatively immune to economic swings, were drugmaker Pfizer , up 3.2 percent to $27.70 after posting earnings and AT&T , 1.6 percent higher at $34.68.

"Cyclical were moving very nicely, now you see balance with some of the defensive. Many managers use that as an internal hedge in equity portfolios," said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.

She said the market is cautious ahead of Wednesday's statement following the Federal Reserve's two-day meeting. In addition, defensive stocks would hold up better if Friday's payrolls report surprises on the downside.

The S&P hovered near 1,500, and market technicians say the benchmark is at an inflection point which will determine the overall direction in the near term.

"The public is pouring in now," said Carter Worth, chief market technician at Oppenheimer & Co in New York. "It reflects complacency and that typically leads to hubris, and hubris leads to trouble. Everyone's buying."

The top performing sectors on the S&P 500 were healthcare <.spxhc> and telecom services <.splrcl>, so-called defensive sectors, both up more than 1 percent.

The energy sector also advanced, on the back of strong earnings from Valero Energy Corp and a hedge fund move to break up Hess Corp to boost investor returns.

Valero shares jumped 12.8 percent to $43.77 and Hess gained 9 percent to $68.11.

The equity gains have largely come on a strong start to earnings season, though results were mixed on Tuesday with Pfizer rising but Ford Motor Co down after its report.

Both companies reported profits that topped expectations, but Ford also forecast a wider loss in its European segment. Ford dropped 4.6 percent to $13.14 as one of the biggest percentage losers on the S&P 500.

The Dow Jones industrial average <.dji> was up 72.49 points, or 0.52 percent, at 13,954.42. The Standard & Poor's 500 Index <.spx> was up 7.66 points, or 0.51 percent, at 1,507.84. The Nasdaq Composite Index <.ixic> was down 0.64 points, or 0.02 percent, at 3,153.66.

Thomson Reuters data showed that of the 174 companies in the S&P 500 that have reported earnings this season, 68.4 percent have been above analyst expectations, which is a higher proportion than over the past four quarters and above the average since 1994.

Disappointing outlooks from Seagate Technology and BMC Software pressured their shares. Seagate lost 9.4 percent to $33.91 and BMC fell 6.3 percent to $41.71.

D.R. Horton Inc's quarterly profit more than doubled as it managed to sell more homes at higher prices, leading the No. 1 U.S. homebuilder to forecast a good spring selling season. The stock jumped 11.8 percent to $23.82.

U.S. home prices rose in November to rack up their best yearly gain since the housing crisis began, a further sign that the sector is on the mend, but consumer confidence fell to its lowest level in more than a year in the wake of higher taxes for many Americans.

(Reporting By Angela Moon; Editing by Nick Zieminski)

Read More..

Wall Street Week Ahead: Bears hibernate as stocks near record highs

NEW YORK (Reuters) - Stocks have been on a tear in January, moving major indexes within striking distance of all-time highs. The bearish case is a difficult one to make right now.

Earnings have exceeded expectations, the housing and labor markets have strengthened, lawmakers in Washington no longer seem to be the roadblock that they were for most of 2012, and money has returned to stock funds again.

The Standard & Poor's 500 Index <.spx> has gained 5.4 percent this year and closed above 1,500 - climbing to the spot where Wall Street strategists expected it to be by mid-year. The Dow Jones industrial average <.dji> is 2.2 percent away from all-time highs reached in October 2007. The Dow ended Friday's session at 13,895.98, its highest close since October 31, 2007.

The S&P has risen for four straight weeks and eight consecutive sessions, the longest streak of days since 2004. On Friday, the benchmark S&P 500 ended at 1,502.96 - its first close above 1,500 in more than five years.

"Once we break above a resistance level at 1,510, we dramatically increase the probability that we break the highs of 2007," said Walter Zimmermann, technical analyst at United-ICAP, in Jersey City, New Jersey. "That may be the start of a rise that could take equities near 1,800 within the next few years."

The most recent Reuters poll of Wall Street strategists estimated the benchmark index would rise to 1,550 by year-end, a target that is 3.1 percent away from current levels. That would put the S&P 500 a stone's throw from the index's all-time intraday high of 1,576.09 reached on October 11, 2007.

The new year has brought a sharp increase in flows into U.S. equity mutual funds, and that has helped stocks rack up four straight weeks of gains, with strength in big- and small-caps alike.

That's not to say there aren't concerns. Economic growth has been steady, but not as strong as many had hoped. The household unemployment rate remains high at 7.8 percent. And more than 75 percent of the stocks in the S&P 500 are above their 26-week highs, suggesting the buying has come too far, too fast.

MUTUAL FUND INVESTORS COME BACK

All 10 S&P 500 industry sectors are higher in 2013, in part because of new money flowing into equity funds. Investors in U.S.-based funds committed $3.66 billion to stock mutual funds in the latest week, the third straight week of big gains for the funds, data from Thomson Reuters' Lipper service showed on Thursday.

Energy shares <.5sp10> lead the way with a gain of 6.6 percent, followed by industrials <.5sp20>, up 6.3 percent. Telecom <.5sp50>, a defensive play that underperforms in periods of growth, is the weakest sector - up 0.1 percent for the year.

More than 350 stocks hit new highs on Friday alone on the New York Stock Exchange. The Dow Jones Transportation Average <.djt> recently climbed to an all-time high, with stocks in this sector and other economic bellwethers posting strong gains almost daily.

"If you peel back the onion a little bit, you start to look at companies like Precision Castparts , Honeywell , 3M Co and Illinois Tool Works - these are big, broad-based industrial companies in the U.S. and they are all hitting new highs, and doing very well. That is the real story," said Mike Binger, portfolio manager at Gradient Investments, in Shoreview, Minnesota.

The gains have run across asset sizes as well. The S&P small-cap index <.spcy> has jumped 6.7 percent and the S&P mid-cap index <.mid> has shot up 7.5 percent so far this year.

Exchange-traded funds have seen year-to-date inflows of $15.6 billion, with fairly even flows across the small-, mid- and large-cap categories, according to Nicholas Colas, chief market strategist at the ConvergEx Group, in New York.

"Investors aren't really differentiating among asset sizes. They just want broad equity exposure," Colas said.

The market has shown resilience to weak news. On Thursday, the S&P 500 held steady despite a 12 percent slide in shares of Apple after the iPhone and iPad maker's results. The tech giant is heavily weighted in both the S&P 500 and Nasdaq 100 <.ndx> and in the past, its drop has suffocated stocks' broader gains.

JOBS DATA MAY TEST THE RALLY

In the last few days, the ratio of stocks hitting new highs versus those hitting new lows on a daily basis has started to diminish - a potential sign that the rally is narrowing to fewer names - and could be running out of gas.

Investors have also cited sentiment surveys that indicate high levels of bullishness among newsletter writers, a contrarian indicator, and momentum indicators are starting to also suggest the rally has perhaps come too far.

The market's resilience could be tested next week with Friday's release of the January non-farm payrolls report. About 155,000 jobs are seen being added in the month and the unemployment rate is expected to hold steady at 7.8 percent.

"Staying over 1,500 sends up a flag of profit taking," said Jerry Harris, president of asset management at Sterne Agee, in Birmingham, Alabama. "Since recent jobless claims have made us optimistic on payrolls, if that doesn't come through, it will be a real risk to the rally."

A number of marquee names will report earnings next week, including bellwether companies such as Caterpillar Inc , Amazon.com Inc , Ford Motor Co and Pfizer Inc .

On a historic basis, valuations remain relatively low - the S&P 500's current price-to-earnings ratio sits at 15.66, which is just a tad above the historic level of 15.

Worries about the U.S. stock market's recent strength do not mean the market is in a bubble. Investors clearly don't feel that way at the moment.

"We're seeing more interest in equities overall, and a lot of flows from bonds into stocks," said Paul Zemsky, who helps oversee $445 billion as the New York-based head of asset allocation at ING Investment Management. "We've been increasing our exposure to risky assets."

For the week, the Dow climbed 1.8 percent, the S&P 500 rose 1.1 percent and the Nasdaq advanced 0.5 percent.

(Reporting by Ryan Vlastelica; Additional reporting by Chuck Mikolajczak; Editing by Jan Paschal)

Read More..

S&P 500 vaults 1,500 as earnings cheer Wall Street

NEW YORK (Reuters) - The S&P 500 index on Friday closed above 1,500 for the first time in more than five years as strong earnings reports, including Procter & Gamble's, helped the benchmark extend its rally to eight days.

The winning streak is the longest in eight years and left the S&P 500 about 4.1 percent away from its all-time closing high of 1,565.15 on October 9, 2007.

The equity market's strong start this year has been attributed to solid corporate results, an agreement in Washington to extend the government's borrowing power, encouraging signs from the global economy and seasonal inflows into stocks.

Procter & Gamble shares led the Dow and S&P higher with a 4 percent gain to $73.25 after the world's top household products maker's quarterly profit soared past expectations. The company also raised its sales and earnings outlook for the fiscal year.

Sales of new U.S. single-family homes fell in December but rose in 2012 to the highest level since 2009, a sign the U.S. housing market turned a corner last year.

"Economic data in the U.S. has been trending higher, albeit modestly. Things are incrementally better," said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.

"The market was able to move forward despite deterioration in Apple and that's also a positive."

The Dow Jones industrial average <.dji> rose 70.65 points or 0.51 percent, to 13,895.98, the S&P 500 <.spx> gained 8.14 points or 0.54 percent, to 1,502.96 and the Nasdaq Composite <.ixic> added 19.33 points or 0.62 percent, to 3,149.71.

The S&P 500 closed at its highest since December 10, 2007 and the Dow ended at its highest since October 31, 2007.

Apple shares dropped 2.4 percent to $439.88, and the iPhone maker lost its coveted title as the largest U.S. company by market capitalization to Exxon Mobil Corp .

Apple's market cap fell to $413 billion, down roughly $250 billion from its September peak. Apple's fall is about equal to the entire value of Google Inc .

Adding to the bullish tone, German business morale improved for a third consecutive month in January to its highest in more than six months. In addition, European banks said they will repay the European Central Bank much more than expected of the loans the bank gave them during the crisis.

"Good news in credit markets helps set the stage for (more investment in) riskier assets," Krosby said.

For the week, the Dow rose 1.8 percent, the S&P climbed 1.1 percent and the Nasdaq rose 0.5 percent. It was the fourth straight week of gains for all three indexes.

Helping to lift the Nasdaq on Friday, Starbucks , rose 4.1 percent to $56.81 after the coffee retailer reported stronger-than-expected sales in the United States and Asia. {ID:nL1N0ATH04]

Netflix added 15.5 percent to $169.56, following its massive 42.2 percent jump Thursday after it announced a surprise jump in subscribers to its video streaming service.

Thomson Reuters data through Friday showed that of the 147 S&P 500 companies that have reported earnings, 68 percent exceeded expectations. Since 1994, 62 percent of companies have topped expectations, while the average over the past four quarters stands at 65 percent.

Halliburton Co shares jumped 5.1 percent to $39.72 after the world's second-largest oilfield services company reported higher-than-expected earnings and sales for the fourth quarter.

About 6.2 billion shares changed hands on the New York Stock Exchange, the Nasdaq and NYSE MKT, below the daily average during January 2012 of about 6.93 billion shares.

On the NYSE, more than three issues rose for every two that fell and on Nasdaq five rose for every four decliners.

(Reporting by Rodrigo Campos; Editing by Kenneth Barry)

Read More..

S&P rises for seventh day but 1,500 too steep a climb

NEW YORK (Reuters) - The smallest of gains gave the Standard & Poor's 500 its seventh straight winning day on Thursday, but the index failed to hold above the 1,500 line, restrained by Apple's worst day in more than four years.

Apple Inc slid 12.4 percent to $450.50 a day after it posted revenue that missed Wall Street's forecast as iPhone sales were poorer than expected.

The sharp drop wiped out nearly $60 billion in Apple's market capitalization to less than $423 billion, leaving the company vulnerable to losing its status as the most valuable U.S. company to second-place ExxonMobil , at $416.5 billion.

The S&P 500, however, managed to hit its longest winning streak since October 2006.

"The market has sent the message it is no longer driven by the whims of Apple," said Ken Polcari, director of the NYSE floor division at O'Neil Securities in New York.

The S&P 500 briefly traded above 1,500 for the first time since December 12, 2007, but failed to hold above it, indicating that momentum is waning and a pullback is in the charts.

"If the market had a little bit more excitement to it, momentum players would have jumped after it broke through 1,500. Investors know the market is a little bit ahead of itself," Polcari said.

Economic data helped buoy equities as U.S. factory activity grew the most in nearly two years in January and new claims for jobless benefits dropped to a five-year low last week, giving surprisingly strong signals on the economy's pulse.

At the same time, Chinese manufacturing grew this month at the fastest pace in about two years, while data suggesting German growth picked up boosted hopes for a euro-zone recovery.

"PMI in Asia, Europe, and obviously, here in the United States, is moving in the right direction, and that's stuff people should be excited about," Polcari said.

The Dow Jones industrial average <.dji> rose 46 points or 0.33 percent, to 13,825.33 at the close. The S&P 500 <.spx> inched up just 0.01 of a point, or 0 percent, to finish at 1,494.82. The Nasdaq Composite <.ixic> dropped 23.29 points or 0.74 percent, to end at 3,130.38, with most of that loss on Apple's slide.

The broader Russell 2000 index <.rut> also hit a milestone as it closed above 900 points for the first time.

Video streaming service Netflix Inc surprised Wall Street with a quarterly profit after it added nearly 4 million customers in the United States and abroad. Netflix shares surged 42.2 percent to $146.86, its biggest percentage jump ever.

Earnings have helped drive the stock market's recent rally. Thomson Reuters data through early Thursday showed that of the 133 S&P 500 companies that have reported earnings so far, 66.9 percent have exceeded expectations - above the 65 percent average over the past four quarters.

About 6.8 billion shares changed hands on the New York Stock Exchange, the Nasdaq and NYSE MKT, below the daily average during January 2012 of about 6.93 billion shares.

Roughly five issues rose for every four that fell on both the NYSE and Nasdaq.

(Editing by Jan Paschal)

Read More..

S&P 500 futures fall after Apple results

NEW YORK (Reuters) - The S&P 500 rose for a sixth day on Wednesday after stronger-than-expected profits from IBM and Google but the rally could be halted as Apple's after-hours miss send its shares lower.

The S&P was just 4.7 percent from its all-time closing high as IBM's and Google's earnings, released after Tuesday's close, followed on the heels of stronger U.S. economic data.

"People were kind of nervous about earnings coming into this quarter but numbers have shown so far strength in earnings," said King Lip, chief investment officer at Baker Avenue Asset Management in San Francisco.

But Apple , still the largest U.S. publicly traded company, fell more than 4 percent in extended trading after sales of its flagship iPhone came in below analyst targets and quarterly revenue slightly missed Wall Street expectations.

Declining issues beat advancers in both the NYSE and Nasdaq during regular market hours, in a sign the market's rally may be overstretched. The broad Russell 2000 index <.rut> closed the day down 0.3 percent after earlier hitting and intraday historic high just below 900 points.

Shares in IBM Corp , the world's largest technology services company, climbed 4.4 percent during regular market hours to $204.72, providing just about all of the Dow's 67-point gain.

Also helping the tech sector was a 5.5 percent jump in Google Inc to $741.50. The Internet search company reported its core business outpaced expectations and revenue was higher than expected.

The S&P technology sector <.splrct> rose 1.2 percent.

The Dow Jones industrial average <.dji> rose 66.96 points or 0.49 percent, to 13,779.17, the S&P 500 <.spx> gained 2.22 points or 0.15 percent, to 1,494.78, and the Nasdaq Composite <.ixic> added 10.49 points or 0.33 percent, to 3,153.67.

The benchmark S&P 500 is a mere 0.35 percent away from hitting 1,500, a level not seen since December 12, 2007.

Netflix shares soared 32 percent, above $136, after the video subscription service said it added subscribers in the United States and abroad and posted a quarterly profit.

LED maker Cree Inc jumped 22 percent to $40.85 after it forecast a higher-than-expected third-quarter profit, and reported results above analysts' estimates.

Upscale leather goods maker Coach Inc plunged 16.4 percent to $50.75 after reporting sales that missed expectations.

Clearing a market hurdle, the U.S. House of Representatives passed a Republican-led plan to extend the country's borrowing authority until mid May. This delays a confrontation in Congress similar to one in 2011, which generated a stalemate that triggered the first-ever U.S. debt rating downgrade.

Thomson Reuters data through Wednesday showed that of the 99 S&P 500 companies that have reported earnings so far, 67.7 percent have topped expectations, above the 65 percent average beat over the past four quarters.

Overall, S&P 500 fourth-quarter earnings rose 2.8 percent, according to Thomson Reuters data. That estimate is above the 1.9 percent forecast at the start of earnings season.

Top U.S. manufacturers sounded a confident note about their expectations for 2013 on Wednesday as fears of the year-end "fiscal cliff" faded into memory.

In the regular session, about 6.1 billion shares changed hands on the New York Stock Exchange, the Nasdaq and NYSE MKT, below the 2012 daily average of about 6.45 billion.

On the NYSE, roughly 15 issues fell for every 14 that rose and on Nasdaq seven declined for every five gainers.

(Reporting by Rodrigo Campos; Editing by Nick Zieminski)

Read More..

S&P 500 ends at five-year high on banks, materials

NEW YORK (Reuters) - Bank and commodity shares led the Standard & Poor's 500 to a fresh five-year closing high on Tuesday on hopes that the global economy continues to mend.

The Dow Jones industrial average also ended at a five-year high, buoyed by an advance in Travelers' shares after the insurer's earnings.

The market also gained on signals that Republican leaders in the U.S. House of Representatives aim on Wednesday to pass a nearly four-month extension of the U.S. debt limit. The White House welcomed the move, saying it defuses fears of a U.S. default on its debt.

Investors, however, were cautious ahead of an increase in earnings reports and as the S&P 500 rose for a fifth straight day.

Jack de Gan, chief investment officer of Harbor Advisory Corp, in Portsmouth, New Hampshire, said better economic numbers in the United States and China, as well as more stabilization in Europe, were driving buyers into sectors associated with economic growth.

"Any (bearish) news could turn us down for a day or so," he said, referring to the recent string of gains.

Freeport-McMoRan Copper & Gold led gains in the materials sector after it reported a 16 percent rise in fourth-quarter profit on higher production. Shares gained 4.6 percent to $35.19.

The Dow Jones industrial average <.dji> rose 62.51 points, or 0.46 percent, to 13,712.21 at the close. The S&P 500 <.spx> gained 6.58 points, or 0.44 percent, to 1,492.56. The Nasdaq Composite <.ixic> added 8.47 points or 0.27 percent, to 3,143.18.

Signs of improved sentiment toward world growth were seen in European bond markets. The yield on Portugal's benchmark 10-year note fell below 6 percent for the first time since late 2010 on news that the country was set to tap the bond market this week for the first time since it was bailed out in 2011.

Technology shares underperformed as concerns about Apple's ability to continue to grow at hyper speed and a weak outlook from Intel Corp diminished optimism about the sector's prospects. The S&P technology index <.splrct> added 0.16 percent, compared with 0.9 percent gains in energy <.spny>, financials <.spsy> and basic materials <.splrcm>.

In extended-hours trading, Google shares rose 4.5 percent to above $734 after the world's No. 1 search engine reported a jump in fourth-quarter revenue, while IBM added more than 3 percent to trade above $200 after the world's largest technology services company reported earnings and revenue that beat estimates.

During the regular session, shares of blue chips Travelers , DuPont , and Verizon Communications rose following earnings

Travelers rose 2.2 percent to $77.95, a closing high. DuPont's shares gained 1.8 percent to $47.82 and Verizon's stock rose 0.9 percent to $42.94.

Thomson Reuters data through Tuesday morning showed that of the 74 S&P 500 companies that have reported earnings so far, 62.2 percent have topped expectations, roughly even with the 62 percent average since 1994, but below the 65 percent average over the past four quarters.

Overall, S&P 500 fourth-quarter earnings are forecast to have risen 2.6 percent. That estimate is above the 1.9 percent forecast from the start of earnings season, but well below the 9.9 percent fourth-quarter earnings forecast from October 1, the data showed.

U.S.-listed shares of Research in Motion rallied 13 percent to $17.90 a day after its chief executive said the Canadian company may consider strategic alliances with other companies after the launch of devices powered by RIM's new BlackBerry 10 operating system.

About 6.2 billion shares changed hands on the New York Stock Exchange, the Nasdaq and NYSE MKT, below last year's daily average of about 6.45 billion shares.

On the NYSE, advancers outnumbered decliners by a ratio of roughly 7 to 3. On the Nasdaq, five stocks rose for every three that fell.

(Reporting by Rodrigo Campos; Editing by Jan Paschal)

Read More..

European shares test two-year highs, yen volatile before BOJ

LONDON (Reuters) - European shares inched towards two-year highs on Monday, as a political attempt to break a budget impasse in the United States and expectations of aggressive Japanese stimulus bolstered the appetite for shares.

U.S. House Republican leaders said on Friday they would seek to pass a three-month extension of federal borrowing authority in the coming days to buy time for the Democrat-controlled Senate to pass a plan to shrink budget deficits.

European shares <.fteu3> were supported by the news <.eu>, but with no clear response from the Democrats and a thin session expected due to a market holiday in the United States, the impact on assets such as bonds and commodities was limited.

By 1500 GMT London's FTSE 100 <.ftse>, Paris's CAC-40 <.fchi> and Frankfurt's DAX <.gdaxi> were up 0.4 to 0.6 percent, leaving the pan-European FTSEurofirst 300 within touching distance of a two-year high and MSCI's world index <.miwd00000pus> steady at a 20-month high. <.l><.eu/>

Expectations that the Bank of Japan will deliver a bold monetary easing plan at the end of its two-day meeting on Tuesday also supported shares and created choppy conditions in the currency market.

According to sources familiar with the BoJ's thinking, the government of new Prime Minister Shinzo Abe and the central bank have agreed to set 2 percent inflation as a new target, supplanting a softer 1 percent 'goal'.

The yen, which has fallen 13 percent against the dollar over the last two months as the shift in Japanese policy has taken shape, touched a new 2-1/2 year low in early trading but then firmed as traders cut short positions given the BOJ has often fallen short of market expectations.

"Investors are being mindful that the moves we have seen over the course of the last month or two are just worth locking in at least until we understand how the BOJ are really going to play in the future," said Jeremy Stretch, head of currency strategy at CIBC World Markets.

CURRENCY WARS

Japanese equities have surged in recent weeks in anticipation of a more aggressive monetary policy stance, but not everyone is happy.

The slump in the yen has prompted Russia's deputy central bank governor to warn of a new round of 'currency wars' and the medium-term risk of running ultra-loose monetary policies is likely to be a theme of the World Economic Forum in Davos, which opens on Wednesday.

With little in the way of economic data or debt issuance and U.S. markets shut for the Martin Luther King public holiday, the rest of the day was expected to be a fairly quiet for investors.

As the first European finance ministers' meeting of the year got under way, most euro zone government bonds were trading virtually flat and the euro was steady at $1.3316.

Market pressure on Europe is now less intense thanks to the European Central Bank's promise to prevent a collapse of the euro. Policymakers are set to discuss Cyprus's plight and plans for the euro zone's bailout fund to directly recapitalize banks.

French Finance Minister Pierre Moscovici said as he arrived at the Brussels meeting that a proper recapitalization strategy was very important.

"Negotiations will be complex, and a final decision is unlikely to emerge soon. Risks for sovereign spreads in the periphery should be limited, but we have some concerns that the long-term solution may fall short of what a real banking union needs," said UniCredit economist Marco Valli.

POLITICAL GAME

The efforts by Republican lawmakers to give the U.S. government leeway to pay its bills for another three months dented demand for safe haven assets and pushed German government bond yields near the top of this year's range.

The U.S. Treasury needs congressional authorization to raise the current $16.4 trillion limit on U.S. debt sometime between mid-February and early March. A failure to achieve that could lead to a debt default.

"This is part of the political game, it remains to be seen whether the Democrats will accept it," KBC strategist Piet Lammens said, adding that investors' working scenario was that a solution to raise the ceiling would be eventually found anyway.

One of the key factors that drove 2-year German yields higher last week was also the prospect of sizeable early repayments of the 1 trillion euros euro zone banks took from the ECB roughly a year ago.

The central bank will publish on Friday how much banks plan to return at the optional first repayment date on January 30. A Reuters poll on Monday showed around 100 billion euros are expected to be repaid although some predict it could be as high as 250 billion.

OIL OVERSUPPLY

German markets showed no reaction after the country's center-left opposition party edged Chancellor Angela Merkel's conservatives from power in a regional election on Sunday, reviving its flagging hopes for September's national election.

The Bundesbank's latest report delivered an upbeat message on the country's economy, saying a recent slump should be short-lived and may have already bottomed out.

Oil prices took their cues from a report in the United States at the end of last week that showed consumer sentiment at its weakest in a year as a result of the uncertainty surrounding the country's debt crisis.

Concerns about demand overshadowed supply disruption fears reinforced by the Islamist militant attack and hostage-taking at a gas plant in Algeria, a member of the Organization of Petroleum Exporting Countries.

Brent futures were down by 40 cents to $111.47 per barrel by mid-afternoon. U.S. crude shed 43 cents to $95.13 per barrel after touching a four-month high last week.

"The over-riding fundamental feeling in the market is that crude oil is over-supplied in 2013," said Tony Nunan, an oil risk manager at Mitsubishi.

Last week's data showing a pick-up in the Chinese economy helped keep growth-sensitive copper prices steady at roughly $8,056 an ounce. Gold, meanwhile, reversed Friday's losses to stand at $1,688 an ounce.

(Additional reporting by Sudip Kar-Gupta, Marious Zaharia and Anooja Debnath; Editing by Peter Graff)

Read More..

Euro zone surveys to offer hope as Japan eases

LONDON (Reuters) - The prospect of stronger European manufacturing surveys and decisive monetary easing in Japan this week ought to bolster confidence that the global economy can look forward to better days.

It is definitely not yet time to break open the champagne.

The index derived from polls of purchasing managers across the euro zone, though recovering, is likely to remain well below the 50 threshold that signals expansion.

If the Bank of Japan bows to political pressure and relaxes policy more boldly, it is because the country's noxious cocktail of a huge debt burden, deflation and dwindling external surpluses threatens an eventual fiscal crunch.

And an expected contraction in Britain's economy when fourth-quarter figures are released on Friday will be a reminder, as was Germany's grim end to 2013, that Europe has to dig itself out of a deep hole.

"The real hard economic data are still very negative," said Bert Colijn, an economist in Brussels with the Conference Board, a business research group. "There are improvements, but it still doesn't look that bright."

However, he said the economic news from the euro zone rim was not quite as troubling, and the mood was brightening among the core countries of the single currency area.

Lena Komileva, managing director of G+ Economics, a London consultancy, said it was hard to argue against investors' new-found appetite for riskier assets given that the volatility of equity prices was approaching historical lows and yields on corporate bonds had fallen sharply.

"Financial stress indicators signal a significant improvement in the health of the global economy," she said.

Friday's solid fourth-quarter economic data from China reinforced that view.

PURCHASERS' PROGRESS

Economists polled by Reuters expect an uptick in Thursday's advance purchasing managers' indexes for France and Germany as well as for the euro zone as a whole.

Germany's IFO business confidence survey on Friday is also projected to have risen for the third month in a row.

"The fact that business confidence measures are coming in more positive is a good sign," Colijn commented.

Commerzbank said its leading indicator for the German economy reached an all-time high in December after the European Central Bank's pledge to buy the bonds of troubled economies eased fears of a break-up of the euro.

"We assume that increasingly more companies are gaining confidence and viewing business prospects more positively," said Commerzbank economist Ralph Solveen.

BNP Paribas is also bullish on Germany and is looking for a marked pick-up in growth.

In addition to the ECB's safety net, the global manufacturing cycle is pointing up, while a strong labor market and easy financial conditions are supporting consumption, economists Evelyn Herrmann and Ken Wattret said in a report.

"Moreover, should the global economy surpass expectations and euro zone market stress ease further, upside surprises would be likely to follow. A key issue in this respect would be higher export growth and confidence triggering a stronger rebound in investment," they said.

That is exactly what Japan would like to see, too.

To that end, the government of new Prime Minister Shinzo Abe and the Bank of Japan have agreed to set 2 percent inflation as a new target, supplanting a softer 1 percent ‘goal', according to sources familiar with the central bank's thinking.

They said the BOJ, which meets on Monday and Tuesday, will also consider making an open-ended commitment to buy assets until the target is in sight.

FOR AND AGAINST EASING

Credit Suisse's global equity strategists said an easier monetary policy is justified to cushion the significant fiscal tightening on which Japan will have to embark before long to whittle down a government debt that has reached some 220 percent of national income.

This task is all the more pressing because Japan is moving towards a current account deficit, which will make it more reliant on foreign investors to finance its budget shortfall, Credit Suisse argued.

Trade figures on Thursday will underline the deterioration in Japan's external accounts, with economists polled by Reuters forecasting the sixth consecutive monthly deficit.

Nomura reckons the deficit for all of 2012 widened to 6.6 trillion yen ($73.4 billion) from 2.7 trillion in 2011.

Japanese equities have surged in anticipation of a more aggressive monetary policy stance, but not everyone is happy.

The accompanying slump in the yen has prompted Russia's deputy central bank governor to warn of a new round of ‘currency wars' and the medium-term risk of running ultra-loose monetary policies is likely to be a theme of the World Economic Forum in Davos, which opens on Wednesday.

"I'm pretty worried about the new policies of Japan's newly elected government," German Finance Minister Wolfgang Schaeuble said last week. "When you think of the surplus of liquidity on global financial markets, it is fuelled further by a wrong understanding of central bank policy.

(Editing by Susan Fenton)

Read More..

Wall Street Week Ahead: Earnings, money flows to push stocks higher

NEW YORK (Reuters) - With earnings momentum on the rise, the S&P 500 seems to have few hurdles ahead as it continues to power higher, its all-time high a not-so-distant goal.

The U.S. equity benchmark closed the week at a fresh five-year high on strong housing and labor market data and a string of earnings that beat lowered expectations.

Sector indexes in transportation <.djt>, banks <.bkx> and housing <.hgx> this week hit historic or multiyear highs as well.

Michael Yoshikami, chief executive at Destination Wealth Management in Walnut Creek, California, said the key earnings to watch for next week will come from cyclical companies. United Technologies reports on Wednesday while Honeywell is due to report Friday.

"Those kind of numbers will tell you the trajectory the economy is taking," Yoshikami said.

Major technology companies also report next week, but the bar for the sector has been lowered even further.

Chipmakers like Advanced Micro Devices , which is due Tuesday, are expected to underperform as PC sales shrink. AMD shares fell more than 10 percent Friday after disappointing results from its larger competitor, Intel . Still, a chipmaker sector index <.sox> posted its highest weekly close since last April.

Following a recent underperformance, an upside surprise from Apple on Wednesday could trigger a return to the stock from many investors who had abandoned ship.

Other major companies reporting next week include Google , IBM , Johnson & Johnson and DuPont on Tuesday, Microsoft and 3M on Thursday and Procter & Gamble on Friday.

CASH POURING IN, HOUSING DATA COULD HELP

Perhaps the strongest support for equities will come from the flow of cash from fixed income funds to stocks.

The recent piling into stock funds -- $11.3 billion in the past two weeks, the most since 2000 -- indicates a riskier approach to investing from retail investors looking for yield.

"From a yield perspective, a lot of stocks still yield a great deal of money and so it is very easy to see why money is pouring into the stock market," said Stephen Massocca, managing director at Wedbush Morgan in San Francisco.

"You are just not going to see people put a lot of money to work in a 10-year Treasury that yields 1.8 percent."

Housing stocks <.hgx>, already at a 5-1/2 year high, could get a further bump next week as investors eye data expected to support the market's perception that housing is the sluggish U.S. economy's bright spot.

Home resales are expected to have risen 0.6 percent in December, data is expected to show on Tuesday. Pending home sales contracts, which lead actual sales by a month or two, hit a 2-1/2 year high in November.

The new home sales report on Friday is expected to show a 2.1 percent increase.

The federal debt ceiling negotiations, a nagging worry for investors, seemed to be stuck on the back burner after House Republicans signaled they might support a short-term extension.

Equity markets, which tumbled in 2011 after the last round of talks pushed the United States close to a default, seem not to care much this time around.

The CBOE volatility index <.vix>, a gauge of market anxiety, closed Friday at its lowest since April 2007.

"I think the market is getting somewhat desensitized from political drama given, this seems to be happening over and over," said Destination Wealth Management's Yoshikami.

"It's something to keep in mind, but I don't think it's what you want to base your investing decisions on."

(Reporting by Rodrigo Campos, additional reporting by Chuck Mikolajczak and Caroline Valetkevitch; Editing by Kenneth Barry)

Read More..

Dow, S&P 500 end at five-year highs on early earnings beats

NEW YORK (Reuters) - The Dow and S&P 500 closed at five-year highs on Friday as the market registered a third straight week of gains on a solid start to the quarterly earnings season.

Morgan Stanley was the latest Wall Street bank to report strong results. Its better-than-expected earnings followed similar report cards from Goldman Sachs and JP Morgan Chase earlier in the week.

Shares of Morgan Stanley shot up 7.9 percent to $22.38. It reported a fourth-quarter profit after a year-earlier loss, helped by higher revenue at the bank's institutional securities business.

But Friday's rise was held back by shares of Intel Corp , which slumped 6.3 percent to $21.25 a day after it forecast quarterly revenue below analysts' estimates and announced plans for increased capital spending amid slow demand for personal computers.

Another factor that has been weighing on the market before a three-day weekend is uncertainty about the federal debt limit and spending cuts that could hamper U.S. growth. U.S. markets will be closed on Monday for the Martin Luther King Jr. holiday.

There were signs on Friday that the question of raising the U.S. debt limit would be put off for a while. House Republican leaders said they would seek to pass a three-month extension of federal borrowing authority next week to buy time for the Democratic-controlled Senate to pass a budget that shrinks deficits.

"It could be a big positive for the markets if we come up wih a plan of spending cuts that isn't too awfully hard on the economy," said Bryant Evans, investment adviser and portfolio manager at Cozad Asset Management, in Champaign, Illinois.

The Dow Jones industrial average <.dji> was up 53.68 points, or 0.39 percent, at 13,649.70. The Standard & Poor's 500 Index <.spx> was up 5.04 points, or 0.34 percent, at 1,485.98. The Nasdaq Composite Index <.ixic> was down 1.30 points, or 0.04 percent, at 3,134.71.

The Dow and S&P 500 ended at their highest levels since December 2007. For the week, the Dow ended up 1.2 percent, the S&P 500 ended up 0.9 percent and the Nasdaq ended up 0.3 percent.

The CBOE Volatility index <.vix>, Wall Street's so-called fear gauge, fell 8.2 percent. The VIX usually moves inversely to the S&P 500 as it is used as a hedge against further market decline.

Also reporting stronger-than-expected earnings on Friday was General Electric , whose shares rose 3.5 percent to $22.04.

Overall, S&P 500 fourth-quarter earnings are forecast to have risen 2.5 percent, according to Thomson Reuters data. [ID:nL1E9CI581] That estimate is above the 1.9 percent forecast from a week ago but well below the 9.9 percent fourth-quarter earnings forecast from October 1, the data showed.

Economic data from China also provided some support to the market, though the focus remained on U.S. corporate earnings. China's economy grew at a modestly faster-than-expected 7.9 percent in the fourth quarter, the latest sign the world's second-biggest economy was pulling out of a post-global financial crisis slowdown which saw it grow in 2012 at its weakest pace since 1999.

Despite the gains by Morgan Stanley, financial stocks sagged as Capital One Financial reported disappointing profit. Capital One slumped 7.5 percent to $56.99, while the KBW bank index <.bkx> slipped 0.3 percent.

Volume was roughly 6.6 billion shares traded on the New York Stock Exchange, the Nasdaq and the NYSE MKT, compared with the 2012 average daily closing volume of about 6.45 billion.

Advancers outpaced decliners on the NYSE by nearly 2 to 1 and on the Nasdaq by about 13 to 11.

(Additional reporting by Angela Moon; Editing by Bernadette Baum, Kenneth Barry and Nick Zieminski)

Read More..

Housing, job-market data push S&P to five-year high

NEW YORK (Reuters) - Stronger-than-expected data on housing starts and jobless claims lit a fire under stocks on Thursday, pushing the S&P 500 to a five-year high and its third day of gains.

Shares of chipmaker Intel rose in extended-hours trading after the company forecast better-than-expected first-quarter gross margins. Intel gained 1.85 percent after closing up 2.6 percent at $22.68. Semiconductor shares <.sox> rose 2 percent to the highest close in eight months.

A pair of economic reports lifted investors' sentiment. The number of Americans filing new claims for unemployment benefits fell to a five-year low last week and housing starts jumped last month to the highest since June 2008.

Strength in the housing and labor markets is key to sustained growth and higher corporate profits, helping to bring out buyers even on a day when earnings reports were mixed.

Gains were tempered by weakness in the financial sector, with Bank of America down 4.2 percent to $11.28 and Citigroup off 2.9 percent to $41.24 after their results.

The S&P 500 ended at its highest since December 2007 and now sits just 5.6 percent from its all-time closing high of 1,565.15.

"Having consolidated really for the last two weeks, the fact that we broke out, I think that that is sucking in quite a bit of money," said James Dailey, portfolio manager of TEAM Asset Strategy Fund in Harrisburg, Pennsylvania.

The Dow Jones industrial average <.dji> was up 84.79 points, or 0.63 percent, at 13,596.02. The Standard & Poor's 500 Index <.spx> was up 8.31 points, or 0.56 percent, at 1,480.94. The Nasdaq Composite Index <.ixic> was up 18.46 points, or 0.59 percent, at 3,136.00.

Better-than-expected earnings and revenue reported by online marketplace eBay late Wednesday helped the stock gain 2.7 percent to $54.33.

In the housing sector, PulteGroup Inc shares gained 4.9 percent to $20.29 and Toll Brothers Inc advanced 3.1 percent to $35.99. The PHLX housing sector index <.hgx> climbed 2.4 percent, reaching its highest close since August 2007.

Financials were the only S&P 500 sector to register a slight decline for the day.

Bank of America's fourth-quarter profit fell as it took more charges to clean up mortgage-related problems. Citigroup posted $2.32 billion of charges for layoffs and lawsuits.

Energy shares led gains on the Dow as U.S. crude oil prices jumped more than 1 percent. Shares of Exxon Mobil were up 0.8 percent at $90.20 while shares of Chevron were up 0.7 percent at $114.75.

S&P 500 earnings are expected to have risen 2.3 percent in the fourth quarter, Thomson Reuters data showed. Expectations for the quarter have fallen considerably since October when a 9.9 percent gain was estimated.

Volume was roughly 6.5 billion shares traded on the New York Stock Exchange, the Nasdaq and the NYSE MKT, compared with the 2012 average daily closing volume of about 6.45 billion.

Advancers outpaced decliners on the NYSE by about 22 to 7 and on the Nasdaq by about 2 to 1.

(Additional reporting by Chuck Mikolajczak; Editing by Kenneth Barry and Nick Zieminski)

Read More..

Dow, S&P 500 inch up with retailers but Apple drags again

NEW YORK (Reuters) - The Dow and S&P 500 edged higher on Tuesday after stronger-than-expected retail data, though tech heavyweight Apple dragged on the market for a third day.

Apple was the biggest weight on both the S&P 500 and Nasdaq 100 <.ndx> after reports on Monday of cuts to orders for iPhone parts. Shares declined 3.2 percent to $485.92 and closed below $500 for the first time since February.

Retail stocks advanced after a government report showing retail sales rose more than expected in December was seen as a favorable sign for fourth-quarter growth. A separate report showed manufacturing activity in New York state contracted for the sixth month in a row in January.

"A little better-than-expected news on retail sales once again reinforces that the consumer remains alive and reasonably well," said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia, which manages about $54 billion in assets.

Among retailers, American Eagle Outfitters Inc gained 4.8 percent to $20.58 and Gap Inc rose 3.4 percent to $32.46. The Morgan Stanley retail index <.mvr> advanced 1.5 percent.

Express Inc surged 23.8 percent to $17.40 after the apparel retailer raised its fourth-quarter and full year 2012 outlook.

The Dow Jones industrial average <.dji> was up 27.57 points, or 0.20 percent, at 13,534.89. The Standard & Poor's 500 Index <.spx> was up 1.66 points, or 0.11 percent, at 1,472.34. The Nasdaq Composite Index <.ixic> was down 6.72 points, or 0.22 percent, at 3,110.78.

Apple's stock has lost about 7 percent in the last three sessions and is down 8.7 percent since the start of the year.

"It's tough to discern exactly what's putting the pressure on it. But at the end of the day, its influence, considering it's still 3 1/2 to 4 percent of the S&P 500 index, is being felt," Luschini said.

"I attribute (it) to just some of the bloom coming off of the rose. They haven't necessarily done anything wrong, as much as others have caught up."

Also keeping investors on edge is the looming debt ceiling debate. On Monday, President Barack Obama rejected any negotiations with Republicans over raising the U.S. debt ceiling. The United States could default on its debt if Congress does not increase the borrowing limit.

Resolving the debt ceiling is more a question of how than if. Investors don't expect a U.S. default, but they are also wary of another eleventh-hour agreement like the one in August 2011.

An expected lackluster earnings season, too, kept investors from taking aggressive bets. Analyst estimates for the quarter have fallen sharply since October. S&P 500 earnings growth is now seen up just 1.8 percent from a year ago, Thomson Reuters data showed.

Homebuilder Lennar reported a sharp rise in quarterly profit, but the stock declined 0.8 percent to $40.68 on worries that growth in orders was slowing.

Dell Inc shares added to Monday's gains, ending up 7.2 percent to $13.17 after sources said talks to take the computer maker private are in an advanced stage.

On the down side, shares of Facebook dropped 2.7 percent to $30.10. The company unveiled a "graph search" feature that CEO Mark Zuckerberg said would help its billion-plus users sort through content within the social network and its content feeds.

Volume was roughly 5.8 billion shares traded on the New York Stock Exchange, the Nasdaq and the NYSE MKT, compared with the 2012 average daily closing volume of about 6.45 billion.

Advancers outpaced decliners on the NYSE by about 17 to 12 and on the Nasdaq by about 13 to 11.

(Additional reporting by Chuck Mikolajczak; Editing by Kenneth Barry and Nick Zieminski)

Read More..

Getting comfortable with living on the edge

LONDON (Reuters) - Just as you learn to put up with a nagging toothache, this week is expected to provide fresh evidence that the U.S. economy is getting used to life on the edge of the fiscal cliff.

Of course, putting off that trip to the dentist is not necessarily wise. The longer Washington delays, the more painful it will become to narrow its gaping budget deficit.

But surveys of U.S. consumer confidence in January and of house builder sentiment in December are likely to show resilience, buttressing the argument of equity bulls that Wall Street's firm start to the year is more than a relief rally or a desperate search for higher returns on investment.

Bluford Puttnam, chief economist of CME Group, said the U.S. economy had managed to grow almost 2 percent last year and create about 1.8 million jobs despite stagnation in Europe, a slowdown in China and the deadlocked budget talks.

"So I see a lot of momentum going into 2013," Puttnam said. "If we can get past this fiscal cliff, the economy is poised to have a much more confident year."

Despite fiscal tightening, he said growth could reach 2.5 percent to 3.0 percent.

Puttnam said the next rounds in the budget battle later this quarter would again be bitterly fought and the resolution would again satisfy no one. But, as with the showdown at the end of 2012, the economy would quickly move on.

"There is a one-in-ten chance that the government may even shut down for a week. It's just going to be ugly. And then it will be over. There will be some kind of compromise, and by April it will fade quickly into the background," he said.

THREE GORGES

U.S. retail sales are likely to have increased only 0.2 percent in December, dampened by the budget worries, according to economists polled by Reuters.

But a pair of regional Federal Reserve surveys and the monthly Reuters/University of Michigan consumer poll are projected to improve, while housing starts, new building permits and builders' confidence should all show that the housing recovery stands on firm foundations.

"That's what's really encouraging consumers to feel that the economy is getting better and that the momentum is broadly positive," said Jerry Webman, chief economist at OppenheimerFunds in New York.

While the phrase fiscal cliff used by U.S. Federal Reserve chief Ben Bernanke conjured up an image of an immediate plunge at the start of this year, in truth any austerity was always likely to take effect on the economy gradually.

Bank of America Merrill Lynch describes the challenges the United States faces in coming months rather as three fiscal gorges it must leap over.

The government could hit the debt ceiling approved by Congress as early as mid-February; across-the-board spending cuts are due to kick in on March 1; and the ‘continuing resolution' to fund all discretionary government spending expires on March 27.

Ideally, investors would like Democrats and Republicans to resolve all three issues with an overarching agreement to slash the deficit by $4 trillion over the next decade.

Instead, given the dysfunctional state of politics, Webman said the best that could be hoped for was another short-term fix that cuts spending and ends some tax breaks.

"The U.S. doesn't move by grand bargains, by big deals. We move by incremental decisions, and I think we'll make some imperfect but improved decisions over the course of 2013," he said.

CHINA ON THE MEND, EUROPE EERILY CALM

Encouraging economic news from China, including stronger-than-expected exports and imports in December, has also supported the start-of-year move by financial market investors out of cash and into riskier assets.

Figures on Friday are expected to show that the world's second-largest economy grew 7.8 percent from a year earlier, rebounding from the 7.4 percent pace of the third quarter and further allaying fears of a hard landing.

"Given some of the bearish commentary on China a few months ago, this should be a relief for markets and it's good for the world economy," said Derry Pickford, macro analyst at investment managers Ashburton in London.

Continuing calm in the euro zone has also helped equities, even though full-year German GDP data on Tuesday will serve as a reminder of the area's economic malaise.

Europe's largest economy contracted last quarter as factories slashed output in response to weak demand from Germany's neighbors, the Economy Ministry said on Friday.

At a news conference a day earlier, European Central Bank President Mario Draghi said he expected a recovery in euro zone growth later this year. But he ruled out an early end to the ECB's crisis policy measures and cautioned that risks were still tilted to the downside. Markets shrugged.

In Europe as in the United States, investors seem to have got used to high levels of policy uncertainty, said Ethan Harris, chief U.S. economist at Bank of America Merrill Lynch.

"It appears that the markets will look past brinkmanship moments unless policy makers break new ground," he said.

In Europe, that might mean not just threatening to eject Greece from the euro zone but actually forcing the exit. In the United States, that might mean not just threatening to violate the debt ceiling but actually doing so, Harris said in a report.

As long as such extreme events do not occur, Harris expects periodic swoons in confidence but no acute crisis.

"This renewed resilience is important because we expect many brinkmanship moments in the months ahead. A now-regular pattern has been established where deals are only struck at the last minute and often under market pressure," he wrote.

(Editing by Patrick Graham)

Read More..

Wall Street Week Ahead: Attention turns to financial earnings

NEW YORK (Reuters) - After over a month of watching Capitol Hill and Pennsylvania Avenue, Wall Street can get back to what it knows best: Wall Street.

The first full week of earnings season is dominated by the financial sector - big investment banks and commercial banks - just as retail investors, free from the "fiscal cliff" worries, have started to get back into the markets.

Equities have risen in the new year, rallying after the initial resolution of the fiscal cliff in Washington on January 2. The S&P 500 on Friday closed its second straight week of gains, leaving it just fractionally off a five-year closing high hit on Thursday.

An array of financial companies - including Goldman Sachs and JPMorgan Chase - will report on Wednesday. Bank of America and Citigroup will join on Thursday.

"The banks have a read on the economy, on the health of consumers, on the health of demand," said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.

"What we're looking for is demand. Demand from small business owners, from consumers."

EARNINGS AND ECONOMIC EXPECTATIONS

Investors were greeted with a slightly better-than-anticipated first week of earnings, but expectations were low and just a few companies reported results.

Fourth quarter earnings and revenues for S&P 500 companies are both expected to have grown by 1.9 percent in the past quarter, according to Thomson Reuters I/B/E/S.

Few large corporations have reported, with Wells Fargo the first bank out of the gate on Friday, posting a record profit. The bank, however, made fewer mortgage loans than in the third quarter and its shares were down 0.8 percent for the day.

The KBW bank index <.bkx>, a gauge of U.S. bank stocks, is up about 30 percent from a low hit in June, rising in six of the last eight months, including January.

Investors will continue to watch earnings on Friday, as General Electric will round out the week after Intel's report on Thursday.

HOUSING, INDUSTRIAL DATA ON TAP

Next week will also feature the release of a wide range of economic data.

Tuesday will see the release of retail sales numbers and the Empire State manufacturing index, followed by CPI data on Wednesday.

Investors and analysts will also focus on the housing starts numbers and the Philadelphia Federal Reserve factory activity index on Thursday. The Thomson Reuters/University of Michigan consumer sentiment numbers are due on Friday.

Jim Paulsen, chief investment officer at Wells Capital Management in Minneapolis, said he expected to see housing numbers continue to climb.

"They won't be that surprising if they're good, they'll be rather eye-catching if they're not good," he said. "The underlying drive of the markets, I think, is economic data. That's been the catalyst."

POLITICAL ANXIETY

Worries about the protracted fiscal cliff negotiations drove the markets in the weeks before the ultimate January 2 resolution, but fear of the debt ceiling fight has yet to command investors' attention to the same extent.

The agreement was likely part of the reason for a rebound in flows to stocks. U.S.-based stock mutual funds gained $7.53 billion after the cliff resolution in the week ending January 9, the most in a week since May 2001, according to Thomson Reuters' Lipper.

Markets are unlikely to move on debt ceiling news unless prominent lawmakers signal that they are taking a surprising position in the debate.

The deal in Washington to avert the cliff set up another debt battle, which will play out in coming months alongside spending debates. But this alarm has been sounded before.

"The market will turn the corner on it when the debate heats up," Prudential Financial's Krosby said.

The CBOE Volatility index <.vix> a gauge of traders' anxiety, is off more than 25 percent so far this month and it recently hit its lowest since June 2007, before the recession began.

"The market doesn't react to the same news twice. It will have to be more brutal than the fiscal cliff," Krosby said. "The market has been conditioned that, at the end, they come up with an agreement."

(Reporting by Gabriel Debenedetti; editing by Rodrigo Campos)

Read More..

Wall Street climbs as China data puts S&P back at five-year high

NEW YORK (Reuters) - Stocks rose on Thursday and the S&P 500 ended at a fresh five-year high as stronger-than-expected exports from China spurred optimism about global growth prospects.

Buying accelerated late in the day after the S&P 500 broke through technical resistance at 1,466.47, which was the market's closing level last Friday and the highest level since December 2007.

"Historically, January is a positive month for the market and you're seeing that play out," said Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut.

Financial and energy stocks were the day's top gainers. The financial sector index <.gspf> rose 1.4 percent and the energy sector <.gspe> was up 1 percent.

Analysts cited economic data out of China as the day's catalyst, which showed the country's export growth rebounded sharply to a seven-month high in December, a strong finish to the year after seven straight quarters of slowdown.

"It is being interpreted positively that they've stopped the downturn (in growth)," said Kurt Brunner, portfolio manager at Swarthmore Group in Philadelphia.

"If they continue to produce good growth, that's going to be supportive of our global manufacturers."

Wall Street's fear gauge, the CBOE Volatility Index <.vix> suggested markets were relatively calm. The VIX was down 2.3 percent at 13.49.

At Thursday's close, the S&P sits about 6 percent below its all-time closing high of 1,565.15, hit in October 2007.

The Dow Jones industrial average <.dji> gained 80.71 points, or 0.60 percent, to 13,471.22. The Standard & Poor's 500 Index <.spx> rose 11.10 points, or 0.76 percent, to 1,472.12. The Nasdaq Composite Index <.ixic> added 15.95 points, or 0.51 percent, to 3,121.76.

Thursday's session had earlier included a dip that traders said was triggered by a trade in the options market that prompted a large amount of S&P futures to hit the market at the same time. That sent the S&P 500 index down rapidly but those losses were reversed through the afternoon.

Financials benefited from events this week that added clarity to mortgage rules and banks' potential exposure to the housing market.

The U.S. government's consumer finance watchdog announced mortgage rules on Thursday that will force banks to use new criteria to determine whether a borrower can repay a home loan.

Earlier this week, several big mortgage lenders reached a deal with regulators to end a review of foreclosures mandated by the government.

"It's a resolution. It's not hanging over their heads," said Brunner.

Bank of America gained 3.1 percent to $11.78, while Morgan Stanley was up 3.7 percent at $20.34, one day after sources said the bank plans to cut jobs.

Shares of upscale jeweler Tiffany dropped 4.5 percent to $60.40 after it said sales were flat during the holidays.

Herbalife Ltd stepped up its defense against activist investor Bill Ackman, stressing it was a legitimate company with a mission to improve nutrition and help public health. The stock ended down 1.8 percent at $39.24 after a volatile day.

After the closing bell, American Express said it would cut about 5,400 jobs, and take about $600 million in after-tax charges in the fourth quarter. The stock added 0.7 percent to $61.20 in after-hours trade.

Volume was above the 2012 average of 6.42 billion shares traded a day, with roughly 6.77 billion shares changing hands on the New York Stock Exchange, the Nasdaq and the NYSE MKT.

Advancers outnumbered decliners on the NYSE by 1,916 to 1,039, while advancers also outpaced decliners on the Nasdaq by 1,439 to 1,036.

(Editing by Nick Zieminski)

Read More..