S&P 500 Erases Half Its Loss Since Lehman’s Failure on Profits

By Elizabeth Stanton and Jeff Kearns

July 24 (Bloomberg) -- The Standard & Poor’s 500 Index recovered 50 percent of the losses suffered after the September collapse of Lehman Brothers Holdings Inc., as a record number of U.S. companies beat analysts’ earnings estimates.

The benchmark gauge for American equities added 2.3 percent to 976.29 yesterday, the highest close since Election Day, after EBay Inc. and AT&T Inc. exceeded profit forecasts. The index has advanced 300 points since it reached a 12-year low March 9. Lehman’s bankruptcy on Sept. 15 sparked a 575-point retreat that erased $6.8 trillion from U.S. stock markets.

Investors are pouring money into shares on speculation the fastest rally since the Great Depression will reverse losses from last year, when the S&P 500 fell 38 percent. U.S. mutual funds received $1.5 billion of net inflows this week, the most since May 13, according to AMG Data Services in Arcata, California. Futures on the S&P 500 slid 0.5 percent as of 12:09 a.m. in New York after Microsoft Corp., Amazon.com Inc. and American Express Co. said earnings trailed analyst estimates.

“We were supposed to have the summer doldrums, but instead we’re getting some fireworks,” said Bernie Schaeffer, president of Schaeffer’s Investment Research in Cincinnati. “People just gave up on the idea of a rally and then all of a sudden, boom.”

The Dow Jones Industrial Average climbed 188.03 points, or 2.1 percent, to 9,069.29 yesterday, the first close above 9,000 since Jan. 6. The Nasdaq Composite Index surged 2.5 percent to 1,973.60 for a 12th straight increase, its longest streak since 1992 and highest level since October.

Bouncing Back

The S&P 500 advanced 22.22 points yesterday, bringing its four-month gain to 299.76. That’s more than one-third of the decline from its October 2007 record to the March 9 low. The rebound took 95 trading days, making it the third-steepest increase from a bear-market bottom since 1933, according to data compiled by Birinyi Associates Inc., the Westport, Connecticut- based money-management and research firm.

U.S. companies are beating analysts’ projections at the highest rate ever this month. Among S&P 500 companies that have posted second-quarter results, 74.1 percent beat the average analyst forecast, according to data compiled by Bloomberg. That would be the highest full-quarter figure on record, Bloomberg data going back to 1993 show. Three-hundred three S&P 500 companies have yet to report for the period.

Technical analysts, who argue that the past performance of a stock or index holds clues to its direction, consider the 50 percent “retracement” since New York-based Lehman failed significant because an increasing number of investors who bought after the collapse are showing profits.

Piling In

“There’s a buying panic,” said John Wilson, chief technical strategist at Morgan Keegan & Co., which manages $120 billion in Memphis, Tennessee. “Nobody should be on the ledge right now, unless they’ve been short.”

Investors may struggle for gains today, if history is any guide. Since credit markets froze in August 2007, the S&P 500 has fallen an average of 0.3 percent on days following advances of 2.3 percent or more, according to data compiled by Bloomberg.

Yesterday’s increase began after EBay, owner of the most- visited U.S. auction Web site, said earnings excluding certain costs were 37 cents a share, 1 cent better than analysts forecast. The San Jose, California-based company climbed 11 percent to $21.52 in Nasdaq Stock Market composite trading.

AT&T, the largest U.S. phone company, rose the most in two months after reporting second-quarter earnings, excluding some items, of 59 cents a share, beating the average analyst estimate by 15 percent. The Dallas-based company added 2.6 percent to $25.48 in trading on the New York Stock Exchange.

Futures on the S&P 500 declined after the close of U.S. trading. Redmond, Washington-based Microsoft reported lower sales than analysts expected. The world’s biggest software maker said revenue slipped 17 percent to $13.1 billion, trailing the $14.5 billion predicted in a Bloomberg survey.

Missing Estimates

Amazon.com Inc., based in Seattle, retreated after the world’s largest Internet retailer reported a decline in second- quarter profit and sales that missed estimates after discounts failed to spur as much growth as predicted.

American Express, based in New York, said net income from continuing operations decreased 48 percent as the recession made it harder for cardholders to keep up with payments. The credit- card issuer also reported second-quarter sales of $6.09 billion, or 1.4 percent less than analysts projected.

“Are we on the cusp of a big, new directional move up? We would say no,” said Carter Braxton Worth, chief technical strategist at Oppenheimer & Co. in New York.

Investors who bought U.S. stocks in January or near the March lows may sell to preserve their gains, Worth said. He was one of two runners-up in Institutional Investor magazine’s latest ranking of the top technical analysts.

Yesterday’s advance pushed the S&P 500 to within 3.5 percent of the average year-end forecast of 1,010 from 10 Wall Street equity strategists tracked by Bloomberg. The index trades for 16.2 times annual profits, compared with an average since 2000 of 19.3, data compiled by Bloomberg show.

“You need that upward momentum in a bull market,” said John Murphy, chief technical analyst at Redmond, Washington- based StockCharts.com. “This is clearly not a bear market rally.”

To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net