Stocks rise early as IMF raises growth estimate, earnings climb

EARLY TRADING on the New York Stock Exchange sent U.S. stock prices higher, based on IMF upgrades in global growth estimates and earnings reports from major U.S. companies. / BLOOMBERG NEWS FILE PHOTO/JIN LEE
EARLY TRADING on the New York Stock Exchange sent U.S. stock prices higher, based on IMF upgrades in global growth estimates and earnings reports from major U.S. companies. / BLOOMBERG NEWS FILE PHOTO/JIN LEE

NEW YORK – U.S. stocks rose after the International Monetary Fund raised its forecast for global growth and corporate earnings beat analysts’ estimates.

Dow Chemical Co. rallied 5.4 percent, the most since April, after Daniel Loeb’s hedge fund Third Point LLC took a stake. Delta, the third-biggest U.S. air carrier, climbed 3.5 percent as fourth-quarter profit more than doubled. Alcoa Inc. jumped 7.1 percent for the biggest gain in the Standard & Poor’s 500 Index after JPMorgan Chase & Co. raised the stock to overweight.

The S&P 500 rose 0.4 percent to 1,846.88 at 10:09 a.m. in New York. Equity trading resumed today after a holiday yesterday to mark the birthday of civil-rights leader Martin Luther King, Jr. The Dow Jones Industrial Average added 11.56 points, or less than 0.1 percent, to 16,470.12.

“In the short term, continued earnings growth is particularly important,” James W. Gaul, a portfolio manager at Boston Advisors LLC, which oversees about $2.5 billion from Boston, said by phone. “We are no longer cheap, perhaps not even fairly valued at this point. Investor sentiment is quite optimistic. We need some positive news to get us going.”

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Investors are the most upbeat about the global economy in almost five years, encouraged by the U.S.-led revival of industrialized nations, according to a Bloomberg Global Poll. Seventy-two percent in the survey of Bloomberg subscribers said the U.S. economy is improving, up from 53 percent a year ago.

Altman, Paulson

Jeff Altman and John Paulson, two of last year’s best- performing hedge-fund managers, are predicting that stocks will continue their rally in 2014 even as the bull market approaches its sixth year. They’re among a number of top money managers betting markets are robust enough to weather a gradual reduction in the pace of the Federal Reserve’s asset purchases as the central bank signaled it will keep interest rates at their current low for the foreseeable future, according to interviews with more than half a dozen investors.

“The wind will continue to be at the markets’ backs with the Fed,” said Altman, head of the $3.2 billion Owl Creek Asset Management LP. He’s betting on telecommunications and aerospace companies, the same industries that helped him gain 49 percent last year, putting him in the top 10 of Bloomberg’s annual hedge fund ranking.

European stocks rose to a six-year high today, and Chinese shares led gains in Asia after the country’s money-market rates fell the most in four weeks.

The U.S. equities benchmark fell 0.2 percent last week, after touching an all-time high, as weaker-than-estimated earnings at companies from Citigroup Inc. to CSX Corp. offset an improving outlook for the global economy.

Earnings season

A five-year rally that lifted the S&P 500 up more than 170 percent from a bear-market low has boosted equity valuations to near the highest level since 2009. The S&P 500 trades at 15.6 times the estimated earnings of its members, more than the five-year average multiple of 14.1, data compiled by Bloomberg show.

Fourteen companies in the S&P 500, including Texas Instruments Inc. and Travelers Cos., report financial results today. Per-share profit for companies in the benchmark probably climbed 6 percent in the fourth quarter, while sales increased 2.2 percent, according to analysts surveyed by Bloomberg.

Of the 61 S&P 500 members that have reported results so far this season, 67 percent have beaten estimates for profit and 67 percent have exceeded sales projections, according to data compiled by Bloomberg.

Dow stake

Dow Chemical rallied 5.4 percent to $45.40. Third Point, the hedge fund led by billionaire Loeb, took a stake in the firm, calling for a share buyback and a spinoff of its petrochemicals business to improve profitability.

Third Point’s stake in Dow is the hedge fund’s largest current investment, Third Point said in a letter to investors, a copy of which was obtained by Bloomberg News. Dow should hire external advisers to review its strategy and the potential benefits of a spinoff, Third Point said.

Delta climbed 3.5 percent to $32.15 as earnings beat analysts’ estimates, helped by increased holiday travel, higher fares and lower fuel costs.

Alcoa advanced 6.6 percent to $12.11. JPMorgan raised its rating on the largest U.S. aluminum producer to overweight, a recommendation similar to buy, from neutral. The brokerage boosted its 12-month price estimate for the stock to $15 from $9 and said increasing premiums and tightening supply will support the company’s earnings growth.

Forest Laboratories Inc. added 1.9 percent to $70.06. The drugmaker reported third-quarter earnings greater than analysts’ estimates on higher sales and raised its profit forecast.

Chesapeake Energy Corp. advanced 2.4 percent to $26.06. The oil and gas company was raised to buy from neutral at SunTrust Robinson, which said Chesapeake has leading positions in three of the best U.S. gas fields and may sell lower-return assets such as its oilfield services unit.

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