Companies that pay the highest dividends such as utility and phone stocks advanced as bond yields slipped, boosting the allure of equity income. Alcoa Inc. (AA) dropped 5.4 percent after profit missed estimates. Sears Holdings Corp. plunged 14 percent as it forecast a fourth-quarter loss and said sales during the holiday period dropped. Chevron Corp. slid 1.9 percent after saying earnings suffered as energy output declined.
The S&P 500 rose 0.2 percent to 1,842.37 at 4 p.m. in New York, after falling as much as 0.3 percent earlier in the day. The benchmark index added 0.6 this week, paring its drop in 2014 to 0.3 percent. The gauge climbed 30 percent last year, the most since 1997. The Dow Jones Industrial Average dropped 7.71 points, or 0.1 percent, to 16,437.05. About 6.6 billion shares changed hands on U.S. exchanges, 8.8 percent above the three-month average.
“This could actually be good news for the market,” Quincy Krosby, a market strategist for Newark, New Jersey-based Prudential Financial Inc., which oversees more than $1 trillion, said by phone. “If these numbers don’t get revised upward, it will keep the Fed careful about wanting to taper too quickly.”
The 74,000 gain in payrolls, less than the most pessimistic projection in a Bloomberg survey, followed a revised 241,000 advance the prior month, Labor Department figures showed today in Washington. The median forecast of 90 economists called for an increase of 197,000. The unemployment rate dropped to 6.7 percent, the lowest since October 2008, as more people left the labor force.
The Fed, which next meets Jan. 28-29, in December announced a reduction of $10 billion in its monthly bond-buying program to $75 billion, citing a recovery in the labor market. Three rounds of stimulus from the central bank have helped push the S&P 500 higher by 172 percent from a 12-year low in 2009.
At the central bank’s December meeting, some members of the Federal Open Market Committee “expressed the view that the criterion of substantial improvement in the outlook for the labor market was likely to be met in the coming year if the economy evolved as expected,” meeting minutes showed Jan. 8.
“The markets have been priced for everything to go perfect,” Ron Florance, the Scottsdale, Arizona-based deputy chief investment officer for Wells Fargo Private Bank, which oversees $170 billion, said by phone. “This number shows us that it’s not going to be perfect. We’re still on the trajectory of recovery, but I would expect heightened volatility.”
The S&P 500 (SPX) trades at 15.6 times estimated earnings of its members, more than the average multiple of 14.1 over the last five years, data compiled by Bloomberg show. Earnings for companies in the S&P 500 will climb 9.5 percent on average this year, almost twice the rate of 2013, while sales will probably increase 3.9 percent, according to analyst estimates compiled by Bloomberg.
“Earnings expectations are quite ambitious this year so we have to see if these come through,” said Virginie Robert, co-founder and partner at Constance Associes in Paris. Her firm, founded in August 2013, oversees three mutual funds including one that tracks the S&P 500 Total Return Index. “The fourth quarter will probably be quite disparate. You can see that retailers who have done well with online sales are reporting better holiday results, but others probably had a terrible quarter.”
JPMorgan Chase & Co., Bank of America Corp. and Goldman Sachs Group Inc. will all report quarterly results next week.
The Chicago Board Options Exchange Volatility Index (VIX), the gauge of S&P 500 options known as the VIX, lost 5.8 percent to 12.14 today. The index has fallen 12 percent this month and closed at the lowest level since August.
Nine out of 10 main industries in the S&P 500 advanced. Utility and phone companies, which have the highest dividend payouts among 10 S&P 500 groups, were among the best performers.
Homebuilders increased 1.3 percent amid optimism a drop in borrowing costs will buoy demand in the housing market. D.R. Horton Inc. advanced 1.8 percent to $22.15 and Lennar Corp. climbed 2 percent to $39.19.
Abercrombie & Fitch Co. jumped 12 percent to $37.19. The teen-clothing retailer increased its full-year earnings prediction. Gap Inc., which rallied 26 percent in 2013, added 1.1 percent to $39.84 after the retailer said annual profit may reach the upper end of its forecast.
Newmont Mining Corp. climbed 2.6 percent to $23.80 as gold futures jumped on speculation the Fed will slow the pace of stimulus reductions.
Intuitive Surgical Inc. advanced 8.6 percent to $420.15 for the biggest increase in the S&P 500. The company’s new robotic surgery system has an 80 percent chance of being approved by the end of the year, a SunTrust Robinson analyst said in a note.
Intercept Pharmaceuticals Inc. rallied 62 percent to $445.83 as a Bank of America analyst raised the biotech firm’s price target to $872 from $81. Intercept soared 281 percent yesterday after a trial of its liver disease drug worked well enough for the testing to be stopped.
Alcoa dropped 5.4 percent, the most in the S&P 500, to $10.11 as the aluminum producer reported fourth-quarter profit that missed analysts’ estimates because of a glut of rolled metal used in the aerospace industry.
Sears Holdings tumbled 14 percent to $36.71. Chief Executive Officer Edward Lampert, the company’s largest shareholder, has been shedding assets, selling locations and spinning off the smaller-format stores and part of the Canadian business amid a continuing sales decline.
Chevron slid 1.9 percent to $121.01 for the biggest drop in the Dow. The world’s second-largest energy company by market value will report a drop in fourth-quarter profit after oil and natural gas production declined amid slumping prices. Net income during the period was “comparable” to the $5 billion earned during the third quarter, the company said in a statement yesterday. That compares with a $7.25 billion profit for the final three months of 2012.
Five Below Inc. (FIVE) sank 7.2 percent to $40.46. The chain that sells teens discounted items said fourth-quarter earnings will probably not exceed 46 cents a share, down from an earlier range of 49 cents to 51 cents forecast in December, after holiday sales fell.
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