U.S. Stocks Erase Gains as Merck Slump Offsets Economic Data

U.S. stocks swung between gains and losses as Merck & Co. led drugmakers lower after sales trailed forecasts and investors awaited tomorrow’s employment report to gauge the outlook for the economy.

Merck, the second-largest U.S. drugmaker, slumped 1.2 percent. Abercrombie & Fitch Co. (ANF), the teen apparel chain, tumbled 12 percent as its preliminary earnings missed analysts’ forecasts. MasterCard Inc. (MA), the second-largest payments network, jumped 5.4 percent as profit climbed 24 percent. Gap Inc. (GPS) surged 9.3 percent after the biggest U.S. specialty apparel chain forecast earnings that beat estimates.

The Standard & Poor’s 500 Index declined 0.2 percent to 1,321.96 at 12:39 p.m. New York time, after rising as much as 0.4 percent earlier. The Dow Jones Industrial Average fell 36.21 points, or 0.3 percent, to 12,680.25.

“We’ll probably continue with a modest amount of job creation,” Matthew DiFilippo, who helps manage $1 billion as chief portfolio strategist at Stewart Capital in Indiana, Pennsylvania, said in a telephone interview. “The earnings season hasn’t been that positive, but it hasn’t necessarily been negative either.”

A report tomorrow may show that employment grew by 145,000 after rising by 200,000 in December, according to the median forecast of economists surveyed by Bloomberg News. The jobless rate may have held at an almost three-year low of 8.5 percent. Earlier today, Labor Department figures showed applications for unemployment insurance payments dropped by 12,000 to 367,000 in the week ended Jan. 28. The median forecast of 46 economists in a Bloomberg News survey projected 371,000.

Earnings Season

Earnings beat projections at 67 percent of the 246 companies in the S&P 500 that reported results since Jan. 9, according to data compiled by Bloomberg. The S&P 500 is trading for about 13.8 times its companies’ earnings and has been stuck below its five-decade average multiple of 16.4 since May 2010, the longest stretch since a 13-year period beginning in 1973.

“It’s a great time to be placing your bets, seeding your garden, because we’re fixing the problems,” John Manley, chief equity strategist for Wells Fargo Advantage Funds in New York, said in a telephone interview. His firm oversees $211.5 billion. “If you believe the U.S. economy is going to get better, you want to own stocks.”

Merck lost 1.2 percent to $38.15. Revenue rose 1.7 percent to $12.3 billion, less than the analyst estimates of $12.5 billion.

Abercrombie & Fitch tumbled 12 percent to $41.31. The teen apparel chain reported preliminary fourth-quarter earnings that trailed analysts’ estimates as holiday promotions narrowed profit margins.

MasterCard Rallies

MasterCard advanced 5.4 percent to $377.03. The results cap a year in which the company, led by Chief Executive Officer Ajay Banga, surged 66 percent. The firm repurchased stock as the global shift from cash and checks to electronic payments continued. New U.S. regulations on swipe fees charged to merchants for debit-card purchases also may help Banga wrest market share from larger rival Visa Inc.

The S&P 500 Diversified Financials Index jumped 0.7 percent, following gains in Europe’s lenders. European Union Economic and Monetary Affairs Commissioner Olli Rehn said he expects a debt-swap agreement between Greece and its private bondholders “by the end of this week.”

Citigroup rose 1.3 percent to $31.99. Morgan Stanley (MS) advanced 0.8 percent to $19.54.

Gap rallied 9.3 percent, the biggest gain in the S&P 500, to $21.27. The company forecast fourth-quarter earnings to be at least 41 cents a share, exceeding the 35-cent estimate by analysts on average.

K-Cups

Green Mountain Coffee Roasters Inc. (GMCR) surged 22 percent to $65.19. The maker of Keurig brand single-cup pods and brewers reported profit that beat analysts’ estimates as sales rose.

“A positive attitude toward equity investing is now in order” because U.S. bank stocks are doing relatively well and volatility is fading, according to Donald Coxe, a strategy adviser to Bank of Montreal.

Coxe recommended that U.S. pension funds lift holdings of domestic stocks by 6 percentage points, to 20 percent of assets. The Chicago-based strategist also called for a 2-point increase in dividend-paying shares, to 12 percent.

KBW Inc.’s regional-bank gauge jumped 37 percent from Sept. 21, when its ratio reached last year’s low, through yesterday. The S&P 500 rose 13 percent during the same period. Similarly, the KBW Bank Index (BKX) gained more than twice as much as the S&P 500 during the past two months.

“It is good for the stock market that they are thriving,” Coxe wrote in his report, dated Jan. 27. He added that the VIX (VIX), the Chicago Board Options Exchange Volatility Index, signals the market “isn’t skating on a pond whose ice is about to crack.”

The VIX has closed below 20 for the past 10 trading days, the longest streak since June. When stocks slumped last August, the index rose as high as 48.

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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