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(Bloomberg) — U.S. stocks surged, recovering nearly all of Friday’s selloff, as technology shares including Apple Inc. and Microsoft Corp. rallied before the industry’s largest companies provide a clearer picture of quarterly earnings.
Computer and Internet shares in the Standard & Poor’s 500 Index surged 1.8 percent. International Business Machines Corp. soared 3.4 percent during regular trading, the most this year, before posting earnings that beat forecasts. Technology companies, among the worst performers Friday, are being watched closely amid a reporting season that may see the first quarterly decline since 2009 for companies in the S&P 500.

“If you want to foretell what may come down the pipe, tech companies are a good example of that,” Krishna Memani, the New York-based chief investment officer at Oppenheimer Funds Inc., said by phone. “Tech companies are often growth companies with a higher beta relative to the market. The world needs a good growth story.”

The Nasdaq 100 Index advanced 1.5 percent at 4 p.m. in New York, the most in two month. The S&P 500 jumped 0.9 percent to 2,100.40, climbing above its average price for the past 50 days. The Dow Jones Industrial Average increased 208.63 points, or 1.2 percent, to 18,034.93, after plunging almost 280 points on Friday.

U.S. stocks rebounded from the biggest drop in three weeks after China’s central bank cut lenders’ reserve requirements and Morgan Stanley earnings topped forecasts. CSX Corp. and Kansas City Southern led rail companies higher, and Hasbro Inc. soared to a record on better-than-estimated earnings.

Twin Pillars

Stocks fell Friday as the twin pillars of earnings and Federal Reserve stimulus that have underpinned the bull market are showing signs of wobbling. Results last week from American Express Co. to Norfolk Southern Corp. missed estimates while rising inflation bolstered the case for higher borrowing costs.

Analysts expect a slump in earnings for S&P companies through September, predicting a fall of 4.3 percent in the first quarter, amid concern over a surging dollar and worse-than- forecast economic reports.
IBM was among nine S&P 500 companies reporting results today, while Google Inc., Facebook and Microsoft report later this week. IBM fluctuated in late trading as first-quarter profit and sales beat analysts’ estimates that were already significantly lowered.

As a group, the computer and biotechnology stocks that make up the Nasdaq 100 Index have seen their market value jump by $3.3 trillion since March 2009, more than any other industry. Now they’re on the hook to generate $320 billion in profits this year, more than technology companies ever made at the height of the Internet craze.

Tech Rally

“These companies have to hit the cover off the ball,” said Jeff Sica, who oversees $1.5 billion as president and chief executive officer of Circle Squared Alternative Investments in Morristown, New Jersey. “If they don’t do well, you might as well count the minutes until this bull market is over.”

Technology shares surged 1.8 percent today. Facebook jumped 2.9 percent. Cisco Systems Inc., Apple, Microsoft and Qualcomm Inc. increased more than 2 percent. Amazon.com Inc. soared 3.7 percent.

The Nasdaq Internet Index added 1.2 percent for the 11th gain in 12 sessions. The gauge tumbled 1.9 percent Friday after reaching 430.07 the previous day, the highest since March 2014. The index has added 8.7 percent this year, amid a surge in Chinese companies including search platform Qunar Cayman Islands Ltd. and Web portal Sohu.com Inc.

China Economy

All 10 major groups in the S&P 500 advanced, with utilities, technology and industrial companies climbing more than 1.1 percent. Energy and consumer-staples shares had the worst performances, with gains of at least 0.4 percent.

The Chicago Board Options Exchange Volatility Index fell 4.3 percent to 13.30, approaching its lowest level in four months. The VIX last week posted two jumps of more than 10 percent in five days.

China’s leaders swung into stimulus mode, cutting the amount of cash lenders must set aside as reserves by the most since the global financial crisis just days after a report showed the slowest economic growth in six years. The move put China more firmly in the easing camp with the European Central Bank and the Bank of Japan.

Friday Selloff

“It’s a reminder for investors that central banks are very accommodative and here to step in when required,” said Andreas Nigg, head of equity and commodity strategy at Vontobel Asset Management in Zurich. “This tends to push investors into more risky assets. We had quite a correction on Friday so it may also be a technical reversal.”

A Friday rout in global equities sent U.S. stocks to their first weekly loss of the month, as disappointing earnings, signs of higher inflation and concerns from China to Greece curbed demand for risk assets. The S&P 500 fell 1.1 percent on April 17.
The S&P 500 last reached a record on March 2, the same day the Nasdaq Composite topped 5,000 for the first time in 15 years, and has struggled to regain that level amid two drops of more than 2.5 percent. While an energy rally took the gauge to within 10 points of an all-time high Wednesday, it has now stalled short of the mark 34 straight days, the longest streak since June 2013.

The Dow Jones Transportation Average climbed 1.7 percent today as rail companies soared. CSX and Kansas City Southern increased more than 2.8 percent. Norfolk Southern Corp. added 2.4 percent.

Morgan Stanley

Morgan Stanley advanced 0.6 percent. Chief Executive Officer James Gorman has won support from investors for his strategy of shrinking the fixed-income unit and relying more on trading stocks and advising wealthy individuals on their investments. Now he’s seeking to boost return on equity above 5 percent for the first time since 2010, his first year on the job.
Halliburton Co. added 2.1 percent after beating analysts’ estimates while reporting a first-quarter loss that came as the result of drilling cutbacks. The company is selling assets to win approval for its $34.6 billion takeover of Baker Hughes Inc.
Hasbro climbed 13 percent, the most since 2010. The toymaker’s earnings followed better-than-forecast results from Mattel Inc., which rallied 10 percent last week, the most since 2009.

Costco Wholesale Corp. rose 1.2 percent. The retailer struck a deal with Visa Inc. and Citigroup Inc. under which its acceptance costs for credit-card payments will be about zero, according to people familiar with the arrangement.
Royal Caribbean Cruises Ltd. dropped 8 percent, the most since 2011, after the cruise line cut its annual profit forecast, blaming fuel prices and the stronger dollar. Carnival Corp. slumped 1.1 percent.

Michael Kors Holdings Ltd. slipped 1.7 percent after being downgraded to neutral from buy at Mizuho Securities USA by equity analyst Betty Chen.

–With assistance from Roxana Zega in Zurich.

To contact the reporters on this story: Oliver Renick in New York at orenick2@bloomberg.net; Lu Wang in New York at lwang8@bloomberg.net To contact the editors responsible for this story: Jeff Sutherland at jsutherlan13@bloomberg.net Jeremy Herron