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Stocks Rise For Second Week On Earnings

U.S. stocks rallied this week, sending the Standard & Poor’s 500 Index to the highest level since June 2008, as earnings grew more than forecast and the Federal Reserve renewed its pledge to stimulate the economy.

Goodyear Tire & Rubber Co., Merck & Co. and Caterpillar Inc. helped lead the week’s advance, rising more than 5.4 percent, as they posted quarterly profit that beat analysts’ forecasts. Boeing Co. gained 5.8 percent after its share-price estimate was raised at Citigroup Inc. Exelon Corp. offered to buy Constellation Energy Group Inc., driving the power producer up 10 percent.

The S&P 500 advanced 2 percent to 1,363.61 this week, rising four straight days in the longest winning streak since Feb. 8. The index rallied 2.9 percent in April. The Dow Jones Industrial Average rose 304.55 points, or 2.4 percent, to 12,810.54 in the biggest weekly gain in a month for both gauges.

“Earnings have definitely been good, that is something tangible you can put your fingers on and say that it has been a positive for the market,” said Walter Todd, who helps manage $950 million at Greenwood Capital Associates in Greenwood, South Carolina. The weekly advance is a result of “both earnings and the Fed. Bernanke gave a green light for the risk trade to continue.”

The Dow Jones Transportation Average, considered a proxy for the economy, rose 4.2 percent to a record high of 5,514.87. The S&P 500 extended its year-to-date increase to 8.4 percent after 229 of 298, or 77 percent, of index companies reporting since April 11 beat the average analyst profit estimate. Equities also advanced after the Fed said a recent acceleration in inflation is likely temporary, signaling the central bank doesn’t feel an urgent need to raise borrowing costs.

Materials, Financials

Earnings-per-share are exceeding projections by 8.3 percent so far this season. Raw-material producers and financial companies are posting the best results, surpassing estimates by more than 13 percent. Eastman Chemical Co., the largest U.S. maker of plastics for water bottles, and Allstate Corp., the nation’s largest publicly traded auto and home insurer, gained after beating analyst estimates, according to data compiled by Bloomberg.

Health-care stocks climbed the most in the S&P 500 this week among 10 groups, helped by Merck, which added 5.6 percent to $35.95. The second-largest U.S. drugmaker had first-quarter profit that topped analyst estimates, boosted by cost reductions and higher sales of its Januvia diabetes pill. All 10 industry groups climbed at least 1 percent this week.

Rate Target

The Fed left its benchmark interest rate in a range of zero to 0.25 percent and held its pledge since March 2009 to keep it “exceptionally low” for an “extended period.” While the U.S. recession ended in June 2009, unemployment is still at 8.8 percent. The central bank has been aiming to stimulate economic growth with a second bond-buying plan that ends in June. Chairman Ben S. Bernanke has signaled he’ll maintain record stimulus until job growth accelerates and the recovery is robust enough to withstand tighter credit.

“The economic recovery is proceeding at a moderate pace and overall conditions in the labor market are improving gradually,” the Federal Open Market Committee said this week in its statement.

The S&P 500 is up 30 percent since Bernanke suggested on Aug. 27 that he may pursue the second round of asset purchases. Bernanke said April 27 that the end of the program is “unlikely to have a significant effect on financial markets or the economy.”

Durable Goods

A Commerce Department report this week also showed orders for durable goods rose in March for a third consecutive month, signaling businesses intend to keep spending to update equipment. Bookings for equipment meant to last at least three years climbed 2.5 percent after a 0.7 percent gain the prior month that was revised from a previously reported drop.

Caterpillar, the world’s largest maker of construction equipment, climbed 5.5 percent to $115.41. The Peoria, Illinois- based company lifted its forecast for 2011 and beat first- quarter profit estimates. Goodyear also beat estimates and the largest U.S. tiremaker climbed 14 percent this week, the most in the S&P 500.

3M Co., the maker of products including Scotch tape and Post-it Notes, boosted its full-year earnings forecast after first-quarter earnings and sales exceeded estimates, fueled by demand at the unit that makes film for solar panels. The shares climbed 3.5 percent to $97.21.

Lorillard Inc. climbed 7.4 percent to $106.50 this week, the highest price since it split from Loews Corp. in 2008, after advancing eight straight days in its longest streak since October 2009. The maker of the top-selling menthol cigarette brand Newport beat the average analyst projection for both earnings and revenue by more than 7.5 percent.

Boeing, Constellation

Boeing, the world’s largest aerospace company, rose 5.8 percent to $79.78 after first-quarter profit topped projections. The Chicago-based company also had its share-price estimate raised at Citigroup, which cited positive “momentum” over the next several years.

Constellation Energy climbed 10 percent to $36.42. Exelon, the largest operator of U.S. nuclear power plants, agreed to buy the power producer for about $7.9 billion in stock, adding stakes in five reactors and becoming the largest U.S. electricity marketer.

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