S&P 500 Caps Longest Weekly Rally Since January 2011

Photographer: Richard Drew/AP Photo

Traders on the floor of the New York Stock Exchange on Aug. 15, 2012. Close

Traders on the floor of the New York Stock Exchange on Aug. 15, 2012.

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Photographer: Richard Drew/AP Photo

Traders on the floor of the New York Stock Exchange on Aug. 15, 2012.

U.S. stocks rose for a sixth week, giving the Standard & Poor’s 500 Index its longest rally since January 2011, as economic reports beat forecasts and Germany backed the European Central Bank’s bond-buying plan.

Apple Inc. (AAPL), the world’s most valuable company, jumped 4.3 percent to a record and surpassed $600 billion in market value on speculation that production has started on a smaller version of the iPad tablet as well as a new television product. Cisco Systems Inc. (CSCO), the biggest maker of computer-networking equipment, climbed 8.7 percent as profit and sales exceeded analysts’ projections. Sears Holdings Corp. (SHLD), the retailer controlled by Edward Lampert, surged 16 percent after reporting a smaller quarterly loss.

The S&P 500 (SPX) rose 0.9 percent to 1,418.16, bringing its gain for the year to 13 percent. The Dow Jones Industrial Average added 67.25 points, or 0.5 percent, to 13,275.20. On the last day of trading, it touched the highest level since December 2007. (INDU) The Chicago Board Options Exchange Volatility Index, which measures the cost of using options as insurance against declines in the S&P 500, slumped 8.8 percent to 13.45, a five-year low.

“Perhaps we ran out of sellers,” said Michael Shaoul, chairman of Marketfield Asset Management, which oversees about $2.7 billion in New York. “Better economic data helps. Corporate earnings didn’t fall apart. If you’re not involved, you could be a long way behind this market.”

Equities rose, sending the S&P 500 near a four-year high reached in April, as data showed rising U.S. industrial production while consumers and homebuilders gained confidence. The reports helped ease concern that the European debt crisis and slowing demand in Asia will weaken the U.S. recovery.

German Priorities

Investor concerns over Europe also faded after German Chancellor Angela Merkel said the ECB’s insistence on conditionality in return for help to lower borrowing costs in indebted countries matches her country’s priorities to end the crisis in the euro region. A person familiar with the matter said Spain is about to get an emergency disbursement from a 100 billion-euro ($123 billion) bailout package.

American companies, which posted the weakest results since 2009, have beaten earnings estimates for a 14th straight quarter, according to data compiled by Bloomberg. More than 72 percent of S&P 500 (SPXL1) companies reported second-quarter profits that topped projections even as 59 percent missed sales forecasts.

Stimulus Bets

Since reaching a four-month low on June 1, the S&P 500 has climbed 11 percent amid bets on economic stimulus. The rally has pushed the gauge to a valuation level of 14.4 times reported earnings, which is still below the average since 1954 of 16.4, data compiled by Bloomberg showed.

Stocks rallied amid a slowdown in volume as vacationing traders awaited policy clues from the Federal Reserve’s summit in Jackson Hole, Wyoming. On Aug. 13, U.S. equity volume reached the lowest level since at least 2008 excluding holidays. About 4.5 billion shares changed hands on all venues that day, the lowest level in data compiled by Bloomberg going back four years that excludes the days surrounding New Year’s, Christmas, Thanksgiving and Independence Day.

Fed Chairman Ben S. Bernanke will have a chance to talk more about policy options at the Kansas City Fed’s conference Aug. 30 to Sept. 1. His speech at the 2010 conference set the stage for a second round of asset purchases. Faster job growth is needed to push down an unemployment rate that has been stuck above 8 percent since February 2009, according to Northern Trust Corp.’s James McDonald.

‘Fragile Recovery’

“The recovery is fragile,” said McDonald, chief investment strategist at Northern Trust in Chicago, whose firm manages $704.3 billion. “As we look at what the Fed is going to do, I would say that they will still lean toward some further accommodation. If we get better data between now and the September meeting, they might pull back.”

The Fed next month will hold off from a third round of bond buying, known as quantitative easing, amid better economic figures, Goldman Sachs Group Inc. said in a report.

So-called cyclical companies, which generate profits that are more sensitive to changes in the economy, had the biggest gains in the S&P 500 among 10 industries. Technology and clothing retailers climbed at least 1.8 percent. Utility, health-care and phone companies in the S&P 500 declined.

Technology shares, which comprise 20 percent of the S&P 500, have rallied for five straight weeks in the longest run since April.

Apple, Cisco

Apple jumped 4.3 percent to $648.11. With tablet sales predicted by research firm Yankee Group to overtake those of personal computers by 2015, Apple is introducing a smaller iPad model to fend off challengers to its top-selling device. The tinier iPad may go on sale by October and a new television could reach stores by 2013, according a research report from Peter Misek, an analyst at Jefferies & Co.

Cisco Systems added 8.7 percent, the biggest weekly gain since 2009, to $19.06. Chief Executive Officer John Chambers has cut 7,800 jobs, shut businesses and reduced prices to win business lost to Juniper Networks Inc. (JNPR) and Hewlett-Packard Co. (HPQ) and combat a slowdown in Europe, which makes up a fifth of sales. The company boosted its dividend by 75 percent.

Sears soared 16 percent, the most in the S&P 500, to $59.49. The company has been working to keep the retailer’s inventory in line with customer demand, with domestic levels decreasing by $512 million from the year-ago period. The lower cost of sales in the quarter helped Sears’s gross margin widen to 26.7 percent of sales from 25.7 percent a year earlier.

Remodeling Projects

Home Depot Inc. (HD) gained 6.9 percent to $56.73, the highest price since 2000. The largest U.S. home-improvement retailer reported second-quarter profit that topped analysts’ estimates and raised its forecast for profit this year as customers spent more on remodeling projects.

Abercrombie & Fitch Co. (ANF) jumped 12 percent, the most since April 2011, to $35.93. The teen retailer authorized additional share buybacks and reported second-quarter profit that topped the company’s preliminary report earlier this month. It also said in a statement that it will be “disciplined and judicious” with shareholder capital.

Target Corp. (TGT) added 2.1 percent to $64.14 after raising its annual profit forecast as the second-largest U.S. discount retailer increases sales by adding groceries and enticing more spending from customers with a discount card.

Estee Lauder Cos. gained 11 percent to $61.61. The maker of Mac cosmetics and Clinique skin care reported fourth-quarter profit and sales that topped analysts’ estimates.

Homebuilders Jump

A measure of homebuilders in S&P indexes jumped 5 percent to the highest level since April 2008. PulteGroup Inc. (PHM), the largest U.S. homebuilder by revenue, climbed 7.2 percent to $13.38. KB Home (KBH), the Los Angeles-based homebuilder that targets first-time buyers, rose 6.8 percent to $11.04.

Staples Inc. tumbled 15 percent to $11.34 after the office- supply retailer cut its annual sales and profit forecast amid slower growth in the U.S. and tepid demand in Europe.

Wal-Mart Stores Inc. (WMT) slumped 2.3 percent to $71.99. The world’s largest retailer retreated as its forecast for profit this year trailed some analysts’ estimates amid slowing sales growth in the U.S.

Deere & Co. (DE) retreated 3.1 percent to $76.94 after cutting its full-year profit forecast as sales slow in Asia and Latin America, undermining the growth strategy at the world’s largest manufacturer of agricultural equipment.

Facebook Inc. plunged 13 percent to $19.05, the lowest price since its initial public offering in May, after the end of restrictions on share sales by its biggest investors. The stock traded 50 percent below its IPO price of $38. (FB)

Coupon Sales

Groupon Inc. (GRPN) sank 36 percent to $4.75, a record low. The largest daily-deal website reported second-quarter revenue that missed estimates as economic weakness in Europe curbed online coupon sales. Evercore Partners Inc. downgraded Groupon shares, citing a potential for billings to decline.

Investors also watched second-quarter filings from asset managers, which showed a shift to stocks that are least tied to economic growth. Asset managers increased holdings the most in health-care stocks and companies that make household goods on concern about an economic slowdown. They reduced weightings in technology and energy shares.

Johnson & Johnson (JNJ), the biggest health-care products company, had the largest increase in money managers’ positions, according to second quarter regulatory filings from investment firms with at least $100 million in U.S. equities. Apple had the seventh-biggest decrease in ownership.

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net

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