U.S. Stocks Climb for 5th Straight Week on Outlook for Economy

By Michael Patterson

Oct. 13 (Bloomberg) -- U.S. stocks rose for a fifth straight week, the longest stretch of gains since May, after minutes from the Federal Reserve and better-than-expected retail sales bolstered expectations that the economy will keep expanding.

Wal-Mart Stores Inc., the world's largest retailer, climbed to a two-month high after boosting its third-quarter profit forecast. Yum! Brands Inc., owner of the Pizza Hut and Taco Bell restaurant chains, jumped the most since September 2005 on earnings that topped analysts' estimates. Exxon Mobil Corp., the biggest oil company, led a gauge of energy shares to a record after crude prices rose to an all-time high.

Minutes from the Fed's Sept. 18 policy meeting showed central bankers avoided language that might have suggested the economy would fall into a recession. The Commerce Department said retail sales increased 0.6 percent last month, from the 0.2 percent gain predicted by analysts in a Bloomberg survey.

``The consumer is a staying force, earnings growth is going to prove better than we think and that's the best outcome for the stock market,'' said James Paulsen, who helps oversee $175 billion as chief investment strategist at Wells Capital Management in Minneapolis. ``There are still good possibilities here.''

The Standard & Poor's 500 Index climbed 0.3 percent to 1,561.80, completing the longest winning streak since the seven- week period ended May 18. The Dow Jones Industrial Average gained 0.2 percent to 14,093.08. Both benchmarks closed at records on Oct. 9. The Nasdaq Composite Index added 0.9 percent to 2,805.68.

Fed Minutes

Fed officials concluded it was best to lower their benchmark rate by half a point to 4.75 percent, double the amount that most economists forecast, the minutes showed.

Further policy decisions ``would depend on how economic prospects were affected by evolving market developments and by other factors,'' according to the records, released this week. Any statement on the balance of risks to the economy ``could give the mistaken impression that the committee was more certain about the economic outlook than was in fact the case.''

The Commerce Department's retail sales report also helped allay concerns that a housing-fueled consumer slowdown might cause the world's biggest economy to contract. Consumer spending accounts for about two-thirds of gross domestic product.

Wal-Mart gained 3.7 percent to $47.06, the highest since Aug. 8. Third-quarter earnings will be 66 cents to 69 cents a share, 4 cents higher than the previous forecast, after the retailer countered slowing sales growth by reducing packaging and energy costs.

Yum jumped 8.4 percent to $37.24. Profit climbed to 50 cents a share from 42 cents a year earlier. That beat the 45-cent average of 11 analysts' estimates compiled by Bloomberg. Yum also said it will buy back as much as $4 billion of its shares in the next two years.

Energy Shares Rise

A measure of energy shares in the S&P 500 rose 2.6 percent for the top gain among 10 industry groups. Oil prices rose for four consecutive days and closed at a record $84.05 a barrel in New York yesterday. Energy stocks have climbed 30 percent as a group this year for the top rise in the S&P 500.

Exxon added 2.3 percent to $93.48. ConocoPhillips, the third-biggest U.S. oil company, gained 1.8 percent to $85.72.

``There ought to be more opportunity in energy,'' said Jeff Layman, chief investment officer at BKD Wealth Advisors, which manages about $1.4 billion in Springfield, Missouri. ``The longer oil sustains at these high levels, the more likely the companies will surprise on the upside in terms of earnings.''

Stock Market Outlook

Reports next week on consumer prices and housing starts will give investors further clues on the outlook for interest rates and economic growth. Prices probably rose in September, while builders began work on fewer homes for a third straight month, according to economists surveyed by Bloomberg.

Ron Sweet, vice president of equity investments at USAA Investment Management Co., said third-quarter earnings reports will also help determine the stock market's direction through the end of 2007. Eighty-six members of the S&P 500 are scheduled to release results next week.

``It really comes down to earnings,'' said Sweet, who helps oversee about $18.9 billion in San Antonio. ``If third-quarter earnings come in without any bad news, it really could be a good 12 months for stocks.''

The yield on 10-year U.S. Treasury notes rose 0.05 percentage point to 4.68 percent after signs of the economy's resilience diminished the appeal of fixed-income securities. Bond yields move inversely to prices.

Last Updated: October 13, 2007 08:46 EDT