By Elizabeth Stanton
July 17 (Bloomberg) -- The Dow Jones Industrial Average rose, capping its best weekly gain since March, as International Business Machines Corp. rallied on an increased earnings forecast and housing starts unexpectedly jumped. Oil rose and treasuries declined.
IBM surged 4.3 percent as cost cuts improved its profit outlook. JPMorgan Chase & Co., KB Home and DR Horton Inc. gained as builders broke ground on the most homes in seven months. Four stocks fell for every three that rose on the New York Stock Exchange. The Standard & Poor’s 500 Index slipped, giving it a weekly gain to 7 percent.
“The large, multi-national companies that have more than 50 percent of their business overseas are doing quite well in this earnings season,” said Kevin Rendino, who manages $10 billion including IBM shares at BlackRock Inc. in Plainsboro, New Jersey. “It’s definitely a stock picker’s market.”
The Dow added 32.12 points, or 0.4 percent, to 8,743.94 at 4:05 p.m. in New York. The S&P 500 slipped less than 0.1 percent to 940.38. The Russell 2000 Index fell 0.5 percent.
The Dow advanced 7.3 percent this week after analyst Meredith Whitney said bank shares will rally and companies from Goldman Sachs Group Inc. to Intel Corp. and Johnson & Johnson reported results that topped estimates. The S&P 500’s weekly gain was also its best since March.
Earnings Beat Estimates
Earnings beat analysts’ estimates by an average of 16 percent for the 38 companies in the S&P 500 that released results since July 8. Profits fell an average 35 percent in the second quarter and will drop 21 percent from July through September, according to analysts’ estimates compiled by Bloomberg. The S&P 500 has rallied 39 percent from its 12-year low on March 9 amid speculation the economy is recovering.
“Analysts had lowered their expectations to the point that most companies seem to be beating in one fashion or another,” said William Dwyer, senior investment officer at Baltimore-based MTB Investment Advisors Inc., which manages $13 billion.
IBM advanced $4.78 to $115.42, the highest since Sept. 30. The world’s biggest computer-services provider was the second technology company in the Dow this week to post forecasts that beat estimates, following Intel on July 14, indicating they are coping with the worst economic slump in five decades.
Technology Companies Advance
Technology companies, the best-performing industry group in the S&P 500 this year, extended their 2009 gain to 31 percent, nearly double the 16 percent return of commodity producers, the next-best group.
IBM made almost 65 percent of its revenue outside the U.S. last year, while Intel Corp. made all but 15 percent of its sales in other countries. Growth in Emerging and developing economies will outpace advanced economies this year and next year, the International Monetary Fund predicted July 8.
The IMF forecast growth of 4.7 percent next year and 1.5 percent this year for emerging economies. Developed economies will grow 0.6 percent in 2010 after shrinking 3.8 percent this year, the Washington-based lender said. The U.S. economy will shrink 2.6 percent this year and grow 0.8 percent next year, the IMF said.
Treasuries fell, posting their first five-day decline in six weeks, after the housing starts report added to signs the recession may be easing.
Ten-year note yields rose after Commerce Department figures showed U.S. housing starts increased 3.6 percent to an annual rate of 582,000, higher than the 530,000 median forecast of economists surveyed by Bloomberg News. Yields declined earlier after bomb blasts in Indonesia’s capital Jakarta killed eight people, spurring demand for the safety of U.S. debt.
‘Caught Off Guard’
“The bond market was completely caught off guard by the increase in housing starts,” said Jane Caron, chief economic strategist in Burlington, Vermont, at Dwight Asset Management Co., which oversees $70 billion. “The market took it as a positive sign.”
The 10-year yield rose nine basis points, or 0.09 percentage point, to 3.65 percent at 4:52 p.m. in New York, according to BGCantor Market Data. The price of the 3.125 percent security maturing in May 2019 fell 23/32, or $7.19 per $1,000 face value, to 95 22/32.
The dollar and the yen posted the biggest weekly declines against the euro since May as increasing U.S. housing starts and companies reporting earnings that topped analysts’ estimates boosted demand for higher-yielding assets.
Dollar, Yen Rebound
The U.S. and Japanese currencies rebounded today versus the Australian and New Zealand dollars after explosions at two hotels in Indonesia renewed demand for a refuge from turmoil. The Mexican peso headed for a weekly gain after policy makers said they will “pause” after cutting the overnight interest rate a quarter percentage point to 4.5 percent.
“We finish the week with economic data globally not as bad as people feared, and the market is willing to take risk again,” said Mark Rzepczynski, managing director at Lakewood Partners, a fund management firm in Boston. “We’ll continue to have the push-and-pull between inflation and deflation, between flight-to-quality and global risk seeking.”
The U.S. currency fell 1.2 percent to $1.4102 per euro at 5 p.m. in New York, from $1.3936 on July 10. The yen lost 3 percent to 132.85 per euro, from 129 a week earlier. The declines were the biggest since the five-day period ended May 22. The Japanese currency fell 1.8 percent to 94.19 per dollar this week.
Crude oil rose more than $1 a barrel as construction of single-family dwellings jumped by the most since 2004, a sign the worst of the recession may have passed.
Crude Rises
Oil increased after the Commerce Department reported that construction of single-family homes climbed 14 percent in June. The report also showed that total housing starts rose to the highest since November. Futures tumbled to $32.40 a barrel in December, a four-year low, as the economic contraction curbed demand, allowing stockpiles to grow.
“The housing starts number was frankly great,” said Bill O’Grady, the chief market strategist for Confluence Investment Management in St. Louis. “You are starting to see evidence that the worst of the recession is over.”
Crude oil for August delivery rose $1.54, or 2.5 percent, to $63.56 a barrel at 2:50 p.m. on the New York Mercantile Exchange, the highest settlement price since July 6. Oil climbed 6.1 percent this week, the first weekly gain since June 12. Futures are down 57 percent from a record $147.27 a barrel reached on July 11, 2008.
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