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TheStreet Open House

Stocks Post Biggest Weekly Gain of 2014 on Signs of Stronger Economy

Stocks in this article: ^GSPC^IXICAMZNFMSFTPGGMCATPFE

NEW YORK (TheStreet) -- The S&P 500 Index recovered much of the ground lost in the selloff earlier in October, posting its biggest weekly gain of 2014 on strong third-quarter earnings in the U.S. and better-than-forecast economic data in China and Europe.

The S&P 500 rose 0.7% on Friday, closing at 1,964 and putting gains over 4% for the week. The Nasdaq closed up 0.7% and the Dow Industrials Index closed up 0.76%. U.S. stock indices, nonetheless, remain below highs reached in mid-September.

Oil markets, a driver of October’s stock market volatility, rallied little during the week, closing near multi-year lows. NYMEX West Texas Intermediate closed lower 1% at $81.27, while ICE Brent Crude closed 0.64% lower at $86.27. 

Must Read: Warren Buffett's Top 10 Dividend Stocks

On Wednesday, a report from the Energy Information Administration showed higher than forecast oil inventories, reinforcing investors’ fears of oversupply. While the tumbling price of oil accounted for much of the stock market volatility in the first two weeks of October, equity markets rallied this week without a recovery in the price of oil.

On Friday, investors sent markets higher despite weaker-than-forecast housing data and the potential for over two-dozen European banks to fail upcoming European Central Bank-administered stress tests.

Amazon (AMZN) was the biggest loser on the S&P 500 after posting weaker than forecast earnings and fourth quarter guidance, while KLA-Tencor (KLAC) was among top gainers after the semiconductor unexpectedly said it would take on $2.5 billion in debt to pay out a $16.50 a share dividend and increase its stock buyback authorization.

Ford (F) , Procter & Gamble (PG) and Microsoft (MSFT) were also market movers after reporting third quarter earnings.

New home sales for September rose 0.2% to 467,000, a report from the Census Bureau showed, slightly below the 470,000 sales economists had forecast. Meanwhile, August home sales were revised downward by 38,000 sales to 466,000. While new home sales data disappointed on Friday, existing home sales hit a one-year high earlier this week, reflecting the benefit of falling mortgage interest rates.

”The story remains unchanged -- consumers strapped with debt and minimal savings, are struggling to afford large purchases without significant income growth,” Lindsey Piegza, chief economist at Sterne Agee said in reaction to new home sales data.

In corporate news, Amazon drove trading after reporting a loss of 95 cents a share on revenue of $20.6 billion, and guidance that came in below expectations. Shares tumbled over 8%, closing at $287.06.

Amazon’s earnings shortfall followed a string of notable third quarter misses, which have caused investors to rethink their outlook on some of the largest companies in America. IBM (IBM) tumbled to multi-year lows after scrapping a 2015 profit goal, and Coca-Cola (KO) similarly told investors it would fall short of of long-standing earnings targets.

Companies seen as economic bellwethers in the U.S. such as Ford (F) , General Motors (GM) , Caterpillar (CAT) and airlines all reported strong earnings, reinforcing the idea that the U.S. economy continues to grow at a steady pace.

Automaker Ford reported better-than-forecast third-quarter earnings, reporting a profit of 24 cents a share for the quarter that exceeded analyst estimates by 5 cents. Those earnings came a day after General Motors (GM) reported strong third-quarter results, highlighted by a 7% rise in car sales in North America.

As a whole, the airline sector reported a $4 billion profit for the third quarter, Deutsche Bank analysts noted on Friday. Those profits amounted to a 31% rise from year-ago levels and reflect new-found pricing power amid industry consolidation and stable consumer spending in the U.S.

Consumer goods conglomerate Procter & Gamble (PG) met earnings estimates on Friday and disclosed a plan to split its Duracell battery division in 2015. Procter & Gamble shares rose over 2%.

Microsoft (MSFT) reported stronger-than-expected adjusted third quarter earnings, driving shares over 2% higher on Frida. "We view Microsoft's September-quarter as another step in the right direction with cloud at the epicenter of [CEO Satya] Nadella's vision for coming years," Daniel Ives, an analyst with FBR Capital Markets said on Friday.

Markets in the U.S. were little impacted by a report from Bloomberg that 25 lenders in the eurozone may fail European Central Bank administered stress tests. Bloomberg, citing unnamed sources, said 25 banks are set to fail ECB-administered stress tests.

Fifteen banks are expected to technically fail tests, meaning that they will fail but are deemed to be in an adequate capital position after raising new equity in 2014. Ten lenders, the report said, will be asked to raise additional capital. Stress test failures will be concentrated in Italy, Portugal and Greece, Bloomberg said.

"This seems more or less in line with what people thought," Peter Tchir, a credit strategist with Brean Capital, said in a note on Friday.

"Anyone thinking that European banks would fail en masse and would need to raise copious amounts of money will be severely disappointed," Tchir noted. Stress test results will be released on Sunday.

Must Read: Warren Buffett's Top 10 Dividend Stocks

-- Written by Antoine Gara in New York

Follow @AntoineGara

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