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Portfolio > Economy & Markets

U.S. stock futures rise amid deals activity, Citigroup earnings

By Dakin Campbell

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(Bloomberg) — U.S. stock futures advanced, after the Standard & Poor’s 500 Index posted its biggest weekly loss in three months, on an increase in takeover activity and better- than-forecast earnings from Citigroup Inc.

Citigroup climbed 3.8 percent after also agreeing to pay $7 billion to settle a mortgage-bond probe. Apple Inc. rose after Barclays Plc. advised investors to buy shares in the world’s biggest company by market value. URS Corp. jumped 7.7 percent after Aecom Technology Corp. agreed to acquire the construction-management company for about $4 billion. AbbVie Inc. fell 2.1 percent after Shire Plc said it’s willing to recommend the U.S. company’s latest bid to its shareholders.

Futures on the S&P 500 expiring in September added 0.4 percent to 1,970.60 at 9:05 a.m. in New York. Dow Jones Industrial Average contracts increased 79 points, or 0.5 percent, to 16,960 today.

“The second-quarter earnings season in the U.S. is likely to be the next major driver of global markets,” Evan Lucas, a markets strategist in Melbourne at IG Ltd., wrote in an e-mail to clients today. “With all the major U.S. banks reporting this week, the market will get the best view of the ‘self-sustaining’ U.S. economy that the Fed now sees.”

The S&P 500 slid 0.9 percent last week amid signs of financial stress at a Portuguese bank and speculation that the recent rally is overdone. The benchmark gauge closed at an all-time high and the Dow topped 17,000 for the first time on July 3. The S&P 500 hasn’t had a drop of 10 percent in more than two years and the gauge trades at a valuation of 18 times reported earnings, the highest since 2010.

Earnings Season

JPMorgan Chase & Co., Goldman Sachs Group Inc., Yahoo! Inc. and Intel Corp. are among the 58 companies on the S&P 500 posting earnings this week. Profit by the gauge’s members increased 4.5 percent in the second quarter. And revenue rose 3.1 percent, according to estimates compiled by Bloomberg.

Citigroup jumped 3.7 percent to $48.73. The third-largest U.S. bank by assets agreed to pay $7 billion in fines and consumer relief to resolve government claims that it misled investors about the quality of mortgage-backed bonds sold before the 2008 financial crisis. The bank said second-quarter profit tumbled 96 percent on $3.7 billion in costs tied to the settlement. Excluding items, profit was $1.24 a share. The average estimate of 25 analysts surveyed by Bloomberg was $1.05.

Investors this week will also be watching statements from central banks and economic reports for clues to the strength of the global economy.

Fed Stimulus

Federal Reserve Chair Janet Yellen is due to testify to U.S. lawmakers. Yellen will deliver her semi-annual monetary policy testimony to the Senate Banking Committee tomorrow and to the House Committee on Financial Services the following day.

Minutes of the Fed’s June meeting released last week showed officials have agreed they’ll end their asset-purchase program in October if the economy holds up. At the same time, the policy makers said the central bank should continue to support favorable financial conditions needed to sustain growth, according to the minutes.

Three rounds of Fed bond-buying have helped propel the S&P 500 higher by more than 190 percent during the current five-year bull market.

European Central Bank President Mario Draghi testifies today at the European Parliament in Strasbourg after announcing a package of measures last month to shore up the economy. Economists surveyed by Bloomberg expect the Bank of Japan will maintain the pace of its monthly bond-buying at this week’s policy meeting.

Economic Recovery

Among the economic reports this week, investors will receive data on housing, manufacturing, labor and inflation. The S&P 500 has rallied 6.5 percent this year amid signs the U.S. economy is recovering from a 2.9 percent contraction in the first quarter. Yellen said last month that accommodative monetary policy, rising property and equity prices and the improving global economy should lead to above-trend growth.

Apple climbed 0.7 percent to $95.91 after Barclays raised its recommendation on the technology company to overweight, or buy, from a rating similar to hold. Separately, Israeli media-services company Emblaze Ltd. said a jury considering its legal claim against Apple ruled the U.S. company didn’t infringe its patent.

URS advanced 8.5 percent to $56.44. Aecom will buy San Francisco-based URS by paying the equivalent of $56.31 a share in cash and stock, the companies said. Including debt, the value of the transaction will be about $6 billion. The price is 8.2 percent more than URS’s July 11 close. Mylan, Abbott

Mylan Inc. rallied 4.1 percent to $52.25. The company is buying Abbott Laboratories’ generic-drug business and forming a new company that will be incorporated in the Netherlands, allowing for a lower-cost tax base.

Abbott will get 21 percent of the new organization, valued at about $5.3 billion, the company said today in a statement. Abbott rose 1.7 percent to $42.

Gentiva Health Services Inc. increased 1.6 percent to $16.07. Kindred Healthcare Inc. offered to buy a 14.9 percent stake in Gentiva for $16 a share as the company seeks to become the largest shareholder in the provider of home health-care services.

AbbVie fell 2.5 percent to $53.60. Shire said it would recommend a bid from AbbVie of 53.20 pounds a share, subject to other terms under discussion being resolved. Shire shareholders would own about 25 percent of AbbVie under the latest proposal.

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