Stocks advance on Alcoa earnings before Fed meeting minutes

NEW YORK – U.S. stocks rose following a two-day selloff, as Alcoa Inc. rallied after earnings topped estimates and investors awaited minutes from the Federal Reserve’s last meeting.

Alcoa jumped 3.9 percent after kicking off earnings season with better-than-forecast results. American Airlines Group Inc. rallied 3 percent, boosting U.S. carriers, after raising its margin forecast. Bob Evans Farms Inc. slid 2.8 percent as quarterly revenue missed estimates.

The Standard & Poor’s 500 Index added 0.3 percent to 1,970.10 at 10:52 a.m. in New York. The Dow Jones Industrial Average gained 36.82 points, or 0.2 percent, to 16,943.44. The Russell 2000 Index rose 0.4 percent following its biggest two-day drop since April. Trading in S&P 500 stocks was 4 percent above the 30-day average at this time of day.

“The market can go down, but it won’t stay down,” John Manley, who helps oversee about $233 billion as chief equity strategist for Wells Fargo Funds Management in New York, said in a phone interview. “The fact that the market is still questioning all these things that are going on is a very healthy sign. I still think the Fed is going to be more concerned about making absolutely sure that the U.S. economic recovery is underway and staying underway.”

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U.S. equities retreated a second day Tuesday amid growing investor concern that stocks have rallied too fast after benchmark indexes ended last week at all-time highs. Raymond James & Associates Inc. said stocks are vulnerable to losses and Citigroup Inc.’s chief U.S. equity strategist cited concerns for a “severe” pullback.

Fed minutes

The Fed will publish at 2 p.m. New York time minutes of its June 17-18 meeting, when officials trimmed monthly bond purchases to $35 billion. Policy makers are debating the timing for the first increase in the main interest rate since 2006.

Recent data from employment to housing is indicating the world’s largest economy is recovering after the worst contraction in gross domestic product since 2009, fueling speculation the Fed may begin raising rates sooner than estimated.

Goldman Sachs Group Inc. joined banks including JPMorgan Chase & Co. and Bank of Tokyo-Mitsubishi UFJ Ltd. in bringing forward it estimates for rate increases after a better-than-forecast jobs report last week.

The S&P 500 has not had a drop of 10 percent in more than two years. The gauge trades at a valuation of 18 times reported earnings, the highest since 2011 when it was in the middle of a 19 percent slide, its biggest during the current five-year bull market.

Valuation concern

Equity losses in the previous two days have been concentrated in technology shares and small-caps with high valuations. Twitter Inc. and Pandora Media Inc., which trade at more than 150 times estimated earnings, plunged about more than 9 percent. Facebook Inc. and TripAdvisor Inc. sank at least 5.3 percent.

More than 130 companies in the S&P 500 are scheduled to report quarterly results in the next two weeks, including Citigroup Inc., JPMorgan Chase & Co., Goldman Sachs and Johnson & Johnson.

Profit at S&P 500 companies probably rose 5 percent in the three months through June, while sales gained 3 percent, estimates compiled by Bloomberg show. The forecasts are lower than they were at the start of April, when analysts predicted a 7.3 percent rise in earnings and 3.7 percent sales increase.

Nine of the 10 main S&P 500 groups advanced on Wednesday, with shares in makers of consumer-discretionary products adding 0.8 percent to pace gains.

Aluminum, airlines

Alcoa, which unofficially kicked off earnings season late on Tuesday, advanced 3.9 percent to $15.43 for the biggest gain in the S&P 500. The struggling U.S. aluminum producer, which is shifting its focus to manufacturing auto and aerospace components, reported better-than-forecast profit on the strength of its traditional aluminum smelting business.

American Airlines gained 3 percent to $41.47. The carrier said second-quarter pretax margins would exceed the company’s previous forecast. The company also said it sees strong global travel demand and no “material pockets of weakness.”

The statements boosted other U.S. carriers, as Southwest Airlines Co. jumped 2.2 percent and Delta gained 1.5 percent.

Reynolds American Inc. rose 2.7 percent to $62.99. The U.K.’s Daily Mail speculated British American Tobacco Plc may purchase the rest of the cigarette producer. BAT holds about 42 percent of Reynolds, according to data compiled by Bloomberg.

Bob Evans Farms slid 2.8 percent to $48.41. The Columbus, Ohio-based operator of family restaurants reported quarterly revenue that failed to meet analyst estimates.

The Container Store Group plunged 9.8 percent to $24.41. The retailer of storage and organization products reported quarterly earnings that missed analysts’ estimates and said it’s “experiencing retail ‘funk.’”

Gigamon Inc. tumbled 30 percent to $12.70. The designer of networking products reported preliminary second-quarter revenue of as much as $35 million. That was lower than its earlier forecast of as much as $42 million, and missed analyst estimates of $40.3 million.

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