U.S. Stocks Advance on Caterpillar Earnings, Bernanke Remarks

U.S. stocks rose, extending the Dow Jones Industrial Average’s longest rally in two years, as Caterpillar Inc.’s earnings tripled analyst estimates and Federal Reserve Chairman Ben S. Bernanke said there are signs the economy is stabilizing.
Caterpillar, the biggest maker of bulldozers, jumped 7.7 percent to lead the Dow to a seventh straight gain. Merck & Co. added 6.1 percent as job cuts helped it post better-than- estimated earnings. Banks slid, limiting the market’s advance, after CIT Group Inc. said it may need to file for bankruptcy if a plan to repurchase debt fails and Regions Financial Corp. and Zions Bancorporation posted quarterly losses on bad loans.
The Standard & Poor’s 500 Index added 0.4 percent to 954.58 at 4:05 p.m. in New York, maintaining its highest level in more than eight months. The Dow Jones Industrial Average rallied 67.79 points, or 0.8 percent, to 8,915.94 to extend its gain since July 10 to 9.4 percent. The MSCI World Index increased 0.9 percent to the highest level since Nov. 4.
“Beating expectations shows they are in slightly better shape than most investors thought,” said Eric Thorne, who helps oversee $2.5 billion at Bryn Mawr Trust Co. in Bryn Mawr, Pa. “The fact that numbers are slightly above estimates is a sign to us that we are in the beginning stages of an economic recovery.”
Earnings Top Estimates
Per-share earnings beat analysts’ projections by an average of 14 percent for the 70 companies in the S&P 500 that reported quarterly results since July 8, according to data compiled by Bloomberg. Analysts forecast profits fell an average 33 percent in the second quarter and will decrease 20 percent from July through September, according to Bloomberg data.
The S&P 500 rallied 1.1 percent yesterday as a gauge of future economic growth topped projections. The benchmark for U.S. equities advanced 7 percent last week as companies from Goldman Sachs Group Inc. to Intel Corp. reported results that topped estimates.
Treasuries climbed the most in almost two weeks today, sending the 10-year note yield down 13 basis points to 3.48 percent, as Bernanke said “limited inflation pressures” will allow policy makers to keep interest rates near zero for an “extended period.” Bernanke, in his semi-annual testimony before the House Financial Services Committee, also said the economy is showing “tentative signs of stabilization.”
Caterpillar Rallies
Caterpillar, the world’s largest maker of bulldozers and excavators, rallied 7.7 percent to $39.46 after government stimulus programs and improved credit markets helped stabilize demand for the world’s largest maker of bulldozers and excavators. Profit excluding some costs was 72 cents a share, surpassing the 22-cent average estimate of 20 analysts surveyed by Bloomberg. The company also raised its full-year forecast. Merck rose 6.1 percent to $29.65 after the drugmaker that is buying rival Schering-Plough Corp. said second-quarter earnings were 83 cents a share, surpassing the 77-cent average estimate of analysts.
Exxon Mobil Corp., the largest U.S. oil company, added 2.2 percent to $70.47 as oil futures erased an earlier loss and gained 1.2 percent to $64.72 a barrel in New York. Chevron Corp., the second-largest U.S. oil producer, added 61 cents $66.25.
International Paper Co. gained 6.4 percent to $17.55, the highest price since Oct. 29, after the largest U.S. maker of cardboard shipping boxes was raised to “buy” from “hold” at Deutsche Bank AG, which said containerboard pricing was stable in June.
New York Times Co. advanced 5.6 percent to $6.42 after the Boston Globe’s largest union approved a contract for $10 million in annual cuts in a decision that may reduce losses at the newspaper and help its owner negotiate a sale.
Credit Suisse Says to Buy
Credit Suisse Group AG today advised investors to buy equities and trim their holdings of government bonds, reversing a recommendation from June. The bank raised its estimate for the S&P 500 by 14 percent to 1,050 by the end of the year, citing improving economic indicators and earnings. Goldman Sachs yesterday boosted its year-end estimate for the measure to 1,060, implying a 15 percent surge between June 30 and Dec. 31. That would be the steepest second-half rally since 1982.
The S&P 500 has rallied 41 percent from a 12-year low on March 9 amid speculation the economy and companies are recovering from the worst recession in more than half a century and the longest slump in quarterly earnings on record.
More Gains Predicted
U.S. stocks will likely continue to advance, according to John Murphy, chief technical analyst at StockCharts.com. The S&P 500 rose to a new high for the year today on an intraday basis, touching 956.53. Since the index exceeded 956, it’s likely to advance to about 1,000, for a gain of 50 percent from the 12- year intraday low of 666.79 on March 6, Murphy said.
Indications that the S&P 500’s run is likely to continue include the performance of the cumulative advance-decline line for securities listed on the New York Stock Exchange, Murphy said. The index, which tallies the number of daily gains for individual securities minus the number of declines since its August 1996 inception, rose 4.2 percent to a 10-month high of 39,961 yesterday.
“Most people missed the lows and continue to treat this as a rally in a bear market,” said Jeffrey Saut, chief investment strategist at Raymond James & Associates in St. Petersburg, Florida, which manages $222 billion. “Hey folks, every bull market that I’ve seen began being called a short-term rally in a bear market.”
CIT Slumps
CIT, the 101-year-old commercial lender, fell 22 percent to 98 cents after saying its “existing liquidity” isn’t enough to repay $1 billion of floating-rate notes maturing on Aug. 17. The lender, which announced a $3 billion rescue financing from its bondholders yesterday, has asked holders of the August notes to swap their claims for 82.5 cents on the dollar.
A gauge of financial shares was the largest drag on the S&P 500 among 10 industry groups as Regions dropped 15 percent to $3.42, Zions declined 13 percent to $10.68 and Comerica Inc. lost 10 percent $20.51.
Lexmark International Inc. had the second-biggest drop in the S&P 500 after CIT, losing 20 percent to $15.08, after the second-largest U.S. printer maker said third-quarter profit may be as low as 40 cents a share, below the 52-cent average of analyst estimates compiled by news.
Lockheed Martin Corp., the world’s largest defense company, lost 8.5 percent to $75.13 after the company posted its largest profit drop in more than five years and the U.S. Senate voted to end funds for its F-22 jet.