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U.S. Stocks Advance as Dollar Weakens; Microsoft, Ford Gain
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By Rita Nazareth

Oct. 26 (Bloomberg) -- U.S. stocks rose and the Standard & Poor?Ts 500 Index rebounded from its biggest drop in three weeks on speculation that better-than-estimated corporate profits will fuel equity gains.

Microsoft Corp. climbed as JPMorgan Chase & Co. raised its share-price estimate for the world?Ts largest software maker after profit beat estimates last week. Ford Motor Co. gained 1.4 percent after the Wall Street Journal said the automaker may post a third-quarter profit. Marvell Technology Group Ltd. jumped 2.7 percent after boosting its third-quarter revenue forecast. The dollar reached a 14-month low versus the euro as amid confidence the global economy is recovering.

?oWe?Tve had a stellar earnings season,? said Tom Wirth, senior investment officer at Chemung Canal Trust Co., which manages $1.6 billion in Elmira, New York. ?oFundamentals are improving and that should give support for the stocks rally we?Tve seen since March.?

The S&P 500 rose 0.3 percent to 1,082.76 at 9:34 a.m. in New York. The Dow Jones Industrial Average gained 36.35 points, or 0.4 percent, to 10,008.53. Almost three stocks advanced for each that fell on the New York Stock Exchange.

More than 80 percent of companies in the S&P 500 that have reported third-quarter results have topped analysts?T earnings projections, exceeding the record pace of 72.3 percent for the period ended in June.

?~Excellent?T

?oThird-quarter earnings have been excellent,? said Max King, a London-based strategist at Investec Asset Management, which oversees about $55 billion. ?oWe?Td expect some sort of benefit from revenue growth next year. Earnings are going to get better and that?Ts a great positive for the equity market in the medium term,? he told Bloomberg Radio.

The S&P 500?Ts 60 percent rally since March 9 propelled the index to a one-year high on Oct. 19 and pushed the valuation of its companies to more than 20 times their reported operating income, the most expensive level since 2004. Stocks dropped last week following government reports that showed housing starts rose less than forecast in September and initial applications for jobless benefits were higher than estimated.

Robert Doll, chief investment officer of equities at BlackRock Inc., said in an interview with CNBC that he expects some ?odigestion? in the market after recent gains. He also suggested a ?odefensive? strategy for investors, particularly those in oil services, might be health-care stocks.

Microsoft, Ford

Microsoft climbed 1.1 percent to $28.33 as JPMorgan raised its share price estimate by 50 percent to $30 after boosting its earnings estimates for the December quarter and fiscal years 2010 and 2011, citing strong performance.

Ford added 1.4 percent to $7.74. The automaker weathered the recession better that its rivals, gaining market share to the extent it may break even or even post a small overall profit when it announces third-quarter earnings on Nov. 2, the Wall Street Journal reported, citing analysts.

Marvell advanced 2.7 percent to $14.98. The chips supplier said its fiscal third quarter net revenue will increase to a range of $760 million to $775 million, higher than its previous projection of as much as $730 million and more than the $710.9 million average estimate in a Bloomberg survey of analysts.

Europe?Ts Dow Jones Stoxx 600 Index fluctuated between gains and losses. The MSCI Asia Pacific Index rose 0.4 percent after Toyota Industries Corp. reported an unexpected profit. Asian shares also gained as South Korea?Ts economy grew at the fastest pace in seven years.

South Korea?Ts third-quarter gross domestic product rose 2.9 percent from the previous quarter, the central bank said today. That was the fastest pace since the first quarter of 2002 and compared with the 1.9 percent growth estimated by economists.

Pullback Predicted

The S&P 500 is about 40 percent overvalued and headed for a decline as central banks pull back on securities purchases that pushed up asset prices, according to economist Andrew Smithers. Asset purchases have doubled the size of the Federal Reserve?Ts balance sheet to $2.1 trillion since the start of the current financial crisis.

In his March 2000 book ?oValuing Wall Street,? co-authored with economist Stephen Wright, Smithers argued that U.S. equities were overvalued and should be sold. The S&P 500 then plunged 49 percent over 2 1/2 years.

The worst performance by U.S. stocks compared with junk bonds since at least 1986 is making some investors more bullish on equities. Barclays Plc and ING Groep NV are increasing share purchases on speculation that improving corporate earnings will prolong the rally in stocks and shrink the gap again.

While owning debt in the riskiest companies has paid about the same as the S&P 500 over the last 23 years, bonds are returning more than twice as much in 2009, according to data compiled by Merrill Lynch & Co. and Bloomberg.