U.S. stocks were little changed, with the Standard & Poor’s 500 Index trading near its highest level since June 2008, as better-than-forecast earnings and takeovers tempered concern over slowing economic growth.
Insurers rallied as Allstate Corp. (ALL), Aflac Inc. (AFL) and Lincoln National Corp. (LNC) posted first-quarter earnings that topped estimates. Sprint Nextel Corp. (S) climbed 4.2 percent as the third- largest U.S. mobile-phone carrier reported a narrower loss after paring costs to offset contract-customer defections. Constellation Energy Group Inc. (CEG) advanced 4.2 percent as Exelon Corp. offered $7.9 billion for the power producer.
The S&P 500 traded almost unchanged at 1,355.63 at 1:16 p.m. in New York. The benchmark gauge for American equities rallied yesterday as the Federal Reserve renewed its pledge to stimulate growth with low interest rates. The Dow Jones Industrial Average increased 25.13 points, or 0.2 percent, to 12,716.09 today.
“Corporate America has managed to do very well in this environment of sluggish growth,” said Randy Bateman, chief investment officer of Huntington Asset Management in Columbus, Ohio, which oversees $14.4 billion. “Earnings are beating estimates. Companies are adding value to their shareholders. There are just not that many alternatives that can compete with corporate America at this point.”
Earnings Scorecard
The S&P 500 rallied 7.8 percent in 2011 through yesterday amid higher-than-expected profit and as economic reports from manufacturing to housing bolstered investors’ confidence. Earnings-per-share beat estimates at more than three-quarters of the 269 companies in the S&P 500 that reported results since April 11, according to data compiled by Bloomberg.
Benchmark gauges reversed early losses as a report showed that the number of Americans signing contracts to buy previously owned homes rose more than forecast in March, a sign the industry that triggered the recession may begin to stabilize.
Stock-index futures fell before the start of regular trading after government data showed the U.S. economy grew at a slower pace than forecast in the first quarter as consumer purchases cooled, home construction decreased and government spending declined. Another report showed that new applications for unemployment benefits in the U.S. unexpectedly rose last week to the highest level in three months, a sign progress in the labor market may be stalling.
‘Harder and Harder’
“It’s very clear that it’s going to be harder and harder to beat estimates from here,” said Quincy Krosby, a market strategist for Newark, New Jersey-based Prudential Financial Inc., which oversees $784 billion. “You’re going to see the leading economic indicators weaken, albeit from a high level. You are going to have more questions in the market.”
The global equities bull market will weather any halt in bond purchases by the Fed amid rising U.S. consumption and investment in emerging markets, according to Templeton Asset Management’s Mark Mobius.
The S&P climbed to an almost three-year high yesterday and the Russell 2000 Index of smaller stocks reached a record after the central bank renewed its pledge to keep interest rates near zero to stimulate the economy. The Federal Open Market Committee agreed to finish $600 billion of Treasury purchases in June. Another round of buying isn’t needed to sustain the rally and there won’t be an economic slump in the second half, Mobius said in a phone interview from Bucharest yesterday before the Fed statement.
Bull Market Intact
“We are in a bull market and it will continue,” said Mobius, 74, who oversees more than $50 billion as the Singapore- based executive chairman of Templeton’s emerging markets group. “There will be corrections along the way but these will be very temporary. The consumer in Europe and America is back. They’re not spending like crazy but they are spending.”
The S&P 500 Insurance Index (S5INSU) rose 1.6 percent, the biggest gain within 24 groups, as 20 of its 22 stocks rallied.
Lincoln and Allstate are among insurers benefiting from improved investment results in the first quarter. Lincoln reported gains on alternative investments, such as hedge funds, while Allstate said losses narrowed on derivatives. Allstate’s results also improved as claims from costs tied to natural disasters declined.
Allstate, the largest publicly traded U.S. home and auto insurer, gained 6.1 percent to $33.90. Aflac rose 5.1 percent to $57.03. Lincoln National added 5.2 percent to $31.93.
Sprint Rallies
Sprint Nextel rallied 4.2 percent to $4.99. The company added 846,000 prepaid users, while losses of the more lucrative customers who sign up for two-year contracts shrank to 114,000 from 578,000 a year earlier. The carrier added handsets such as the HTC Corp. Evo to wrest customers from larger rivals AT&T Inc. (T) and Verizon Wireless and draw users to its fourth- generation network.
Constellation Energy climbed 4.2 percent to $35.75. Exelon, the largest operator of U.S. nuclear power plants, agreed to buy the power producer for about $7.9 billion in stock, adding stakes in five reactors and becoming the largest U.S. electricity marketer.
Overall, there have been more than 8,000 deals announced globally this year, totaling more than $794 billion, a 26 percent increase from the $629.7 billion in the same period in 2010, according to data compiled by Bloomberg.
Cost Cuts
PulteGroup Inc. gained 4.4 percent to $8.33. The largest U.S. homebuilder by revenue forecast profit in the second half of the year. The company focused on cutting costs in the face of weak demand for new homes. Selling, general and administrative expenses for the quarter decreased 10 percent from a year earlier to $136 million. The rate of cancellations declined and visits to the company’s sale centers increased, said Richard Dugas, chairman and chief executive officer.
“Assuming market conditions remain stable, we have put ourselves in a position to return to profitability in the back half of the year.” Dugas said on a conference call with investors. “Now it’s about effort and execution, which are clearly within our control.”
Akamai Technologies Inc. (AKAM) tumbled 15 percent to $34.99. Traffic growth in the company’s volume business has “moderated,” and it’s “too early” to predict the pace of growth for the rest of the year, according to Chief Executive Officer Paul Sagan. Akamai delivers data for Apple Inc. (AAPL)’s iTunes and streams video for Netflix Inc. (NFLX)
To contact the reporter on this story: Rita Nazareth in Sao Paulo at rnazareth@bloomberg.net
To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net
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