A rally in technology shares sent the Standard & Poor’s 500 Index to a six-year high and the Dow Jones Industrial Average to a record after Cisco Systems Inc. forecast sales that beat analysts’ estimates.
The Nasdaq Composite Index rose the most in two weeks, helped by Broadcom Corp., after Morgan Stanley said the chipmaker may report profit tomorrow that tops analysts’ projections.
“The Cisco report was positive for the market,” said Wayne Reisner, president of Carret Asset Management in New York, which handles $1.6 billion and owns Cisco shares. “Earnings are still going forward, although not as strong as in the past, and tech has the potential to take off.”
Cisco, the world’s biggest maker of computer-networking equipment, reinforced expectations that forecasts for earnings growth at technology companies, currently the highest of any industry this year, are achievable. Stocks also advanced as worker productivity rose more than expected and labor costs slowed.
The S&P 500 added 3.92, or 0.3 %, to 1451.92 as of 12:40 p.m. in New York. The Dow industrials increased 19.15, or 0.2 %, to 12,685.46. The Nasdaq, which gets 42 % of its value from computer shares, rallied 20.64, or 0.8 %, to 2492.13.
So far this month, the S&P 500 has advanced 1 %. The benchmark index completed in January its longest streak of monthly increases in a decade after the Federal Reserve said the economy is gaining momentum without generating faster inflation.
For the 332 members of the S&P 500 that reported fourth- quarter earnings, average growth was 8.2 %, according to data compiled by Bloomberg. If that pace holds, it would snap a 13-quarter streak of profit growth above 10 % that matched the longest since 1950, according to Thomson Financial.
Overall earnings growth is expected to slow to 4.3 % this quarter, the data show.
So far, 60 % of companies that announced earnings reported positive surprises and 26 % have reported negative surprises.
Today, the Labor Department said worker productivity rose 3 % last quarter, while labor costs slowed to a 1.7 % pace, suggesting wages may pose less of an inflation threat.
Economists surveyed by Bloomberg News had median forecasts of a 2 % rise in fourth-quarter productivity and a 2.1 % increase in labor costs.
With a steady economic expansion, “you can expect continued corporate earnings growth and benign inflation,” said Fritz Meyer, who helps manage $149 billion at AIM Investments in Houston. “That’s an optimal combination for stocks. A good productivity number supports those assumptions.”
Cisco rallied $1.13, or 4.1 %, to $28.41. Its profit last quarter jumped 40 % to $1.92 billion as customers upgraded their communications systems for video.
Chief Executive Officer John Chambers said sales this quarter will climb as much as 20 % to $8.8 billion as the company reaps more gains from the Scientific-Atlanta business. Analysts expected $8.57 billion in sales, according to a Bloomberg survey.
Rival Juniper Networks Inc. added 58 cents to $19.21.
Analysts estimate technology companies’ earnings rose 2.3 % last quarter. For the full year, the group’s profit is projected to increase 22 %, the most among 10 industries, according to data compiled by Bloomberg.
Among other computer-related shares, Broadcom surged $1.93, or 6 %, to $33.92. The maker of chips for consumer devices was raised to “overweight” from “equal-weight” at Morgan Stanley.
Nortel Networks Corp. gained $1.04 to $26.97. North America’s largest maker of telephone gear plans to cut about 2,900 jobs worldwide in the next two years, striving to trim costs to improve profit growth.
A measure of information technology companies advanced 1 % for the best performance among 10 industry groups in the S&P 500.
Equity Office Properties Trust fell 59 cents to $55.46. Vornado Realty Trust dropped its bid for the company, paving the way for Blackstone Group LP to complete the largest leveraged buyout in history for $39 billion.
Companies reporting earnings gained.
Apollo Group Inc. soared $3.65, or 8.6 %, to $45.89, the steepest rise in the S&P 500. The largest U.S. operator of for-profit colleges advanced as much as 11 %, the most in more than six years, after reporting first-quarter profit that beat analysts’ estimates.
News Corp., the world’s third-largest media company, climbed 41 cents to $23.39 after reporting second-quarter profit that beat analysts’ estimates.
DirecTV Group Inc. gained $1.70 to $25.67. The largest U.S. satellite-television company said fourth-quarter profit almost tripled as subscriber growth and average sales per customer increased more than analysts estimated.
Cigna Corp. gained $2.17 to $139.29. The fourth-largest U.S. health insurer said profit last quarter climbed 10 % to $232 million after the purchase of a benefits supplier added customers. Earnings, excluding some items, was $2.61 a share in the quarter, beating the $2.26 average estimate of analysts.
FEI Co. advanced $5.27 to $30.58. The maker of ion-beam workstations forecast profit of as much as 32 cents a share for the first quarter. That topped the 25-cent average analyst estimate compiled by Bloomberg. Fourth-quarter sales, bookings and profit exceeded FEI’s forecasts. Credit Suisse raised the shares to “neutral” from “underperform.”
Tyco, Forest Labs
Tyco International Ltd. and Forest Laboratories Inc. fell as analysts recommended investors reduce holdings in the shares.
Tyco, the world’s biggest maker of electronic connectors and security systems, fell 74 cents to $31.85. Deutsche Bank AG cut its recommendation on the stock to “hold” from “buy” a day after Tyco reported first-quarter earnings fell on costs to split itself into three independent companies.
Forest Laboratories, the maker of the Lexapro antidepressant and Namenda for Alzheimer’s disease, lost $2.34 to $55.50. Citigroup Investment Research lowered its rating for the stock to “sell” from “hold.” The firm also cut its share price estimate by 13 % to $47.
Whirlpool Corp. dropped $2.72 to $92.18. The world’s largest appliance maker lowered its 2007 earnings forecast, sending the stock to its biggest loss in six months.