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July 29, 2014 at 07:15 AM
(Bloomberg) — U.S. stocks rose amid a rally in phone shares and optimism over corporate earnings. Bonds advanced, while the ruble weakened as the European Union and U.S. prepared new sanctions against Russia.
The Standard & Poor’s 500 Index gained 0.3 percent at 10:26 a.m. in New York, and the Stoxx Europe 600 Index rose 0.6 percent. The yield on 10-year Treasuries declined 1 basis point to 2.47 percent before a Federal Reserve policy decision.
Germany’s 10-year yield fell 3 basis points to an unprecedented 1.119 percent, and rates from Finland to Italy also dropped to records. The ruble depreciated 0.4 percent while gold reversed an earlier advance.
Windstream Holdings Inc. led a rally in phone shares. Merck & Co. gained after the drugmaker reported profit that beat estimates, while United Parcel Service Inc. slipped after lowering its full-year forecast. Fed policy makers start a two- day meeting today as data showed consumer confidence increased to the highest since 2007 while U.S. home prices rose at the slowest pace in more than a year. The U.S. and the EU may move as soon as today to impose tougher sanctions on Russia.
“The broader backdrop still sits on a solid footing,” Will R. Nasgovitz, a Milwaukee-based portfolio manager at Heartland Advisors Inc. said in a phone interview. His firm oversees $6.1 billion. “There is concern around what the Fed is doing in terms of when they might raise rates.
“We don’t know how Europe is going to play out with Russia/Ukraine,” he adds. “The same is true for the Middle East. People are looking for confirmation that the outlook for the second half this year is in place.”
Fed Decision
The Fed’s Open Market Committee will scale back its monthly asset purchases to $25 billion from $35 billion on July 30, according to economists surveyed by Bloomberg, keeping it on pace to end the program late this year. The policy-making committee last month repeated that it’s likely to “reduce the pace of asset purchases in further measured steps” and that it expects interest rates to stay low for a “considerable time” after the bond-buying ends.
Chair Janet Yellen and her fellow policy makers are debating how long to keep interest rates near zero as the U.S. labor market improves and inflation moves closer to the Fed’s 2 percent goal. Three rounds of monetary stimulus from the Fed and better than-forecast corporate earnings have driven the S&P 500 up 192 percent from its March 2009 bottom. The S&P 500 is trading at 18.1 times earnings of its members, around the highest valuation for the gauge since 2010.
Economic Data
The S&P/Case-Shiller index of property values in 20 cities increased 9.3 percent from May 2013, the smallest year-to-year advance since February 2013, after rising 10.8 percent in the year ended in April, the group said today in New York.
The Conference Board’s index of U.S. consumer confidence increased to 90.9 in July, the highest since October 2007, from 86.4 a month earlier, the New York-based private research group said today. The median projection in a Bloomberg survey of 75 economists called for a reading of 85.4 in July.
“Risk assets globally continue to be supported by the fact that the Fed is in no hurry to hike interest rates,” said Alvin T. Tan, the director of foreign-exchange strategy at Société Générale SA in London. “Our economists are expecting the U.S. data to come out on the positive side.”
Quarterly profit growth is poised for the fastest increase in almost three years. Companies in the S&P 500 have reported an 11 percent gain in second-quarter earnings, data compiled by Bloomberg show. Should the pace continue, the gain would exceed all periods since the third quarter of 2011.
Corporate Earnings
American Express Co. and Newmont Mining Corp. are among other S&P 500 companies reporting earnings today. About 78 percent of those that have posted results this season have beaten analysts’ estimates for profit, while 65 percent exceeded sales projections, data compiled by Bloomberg show.
Merck rose 1.5 percent after reporting quarterly earnings that topped analysts’ projections. UPS slipped 3.3 percent after cutting its full-year forecast as second-quarter profit fell short of estimates.
