Most U.S. stocks rose as optimism about global economic growth was overshadowed by disappointing results from Johnson & Johnson and Verizon Communications Inc.
J&J declined 1.1 percent, the most in a month, after its earnings forecast trailed analysts’ estimates. Verizon slipped 1.3 percent as subscriber growth slowed from a record. Dow Chemical Co. rallied 6.6 percent after Daniel Loeb’s hedge fund Third Point LLC took a stake. Alcoa Inc. jumped 6.8 percent after JPMorgan Chase & Co. recommended buying the stock.
The S&P 500 gained 0.3 percent to 1,843.80 at 4 p.m. in New York. Three stocks rose for every two that fell in the gauge. The Dow Jones Industrial Average lost 44.12 points, or 0.3 percent, to 16,414.44. The Russell 2000 Index of small-cap stocks increased 0.6 percent to a record 1,175.72. About 6.8 billion shares changed hands on U.S. exchanges, 12 percent above the three-month average.
“In the short term, continued earnings growth is particularly important,” James W. Gaul, a portfolio manager at Boston Advisors LLC, which oversees about $2.5 billion from Boston, said by phone. “We are no longer cheap, perhaps not even fairly valued at this point. Investor sentiment is quite optimistic. We need some positive news to get us going.”
Stocks pared early gains today after the S&P 500 approached 1,850, a level that has halted the index’s advance three times in the past month. The benchmark gauge reached an intraday record of 1,850.84 on Jan. 15.
The International Monetary Fund raised its forecast for global growth this year as expansions in the U.S. and U.K. accelerate. The global economy will grow 3.7 percent this year, compared with an October estimate of 3.6 percent, according to the report.
European stocks rose to a six-year high today and Chinese shares led gains in Asia after the country’s money-market rates fell the most in four weeks. The U.S. equities benchmark fell 0.2 percent last week, after touching an all-time high, as weaker-than-estimated earnings at companies from Citigroup Inc. to CSX Corp. offset an improving outlook for the global economy.
For every U.S. company predicting in January that earnings will beat analyst estimates, 2.5 are projecting results that fall short, matching the worst ratio since the rally began in March 2009, according to data compiled by Bloomberg. While analysts say S&P 500 profits will rise 8.8 percent in 2014, that’s almost the same estimate they generated a year ago for 2013, when earnings ended up increasing at about half that rate, the data show.
A five-year rally that lifted the S&P 500 up more than 170 percent from a bear-market low has boosted equity valuations to near the highest level since 2009. The S&P 500 trades at 15.6 times the estimated earnings of its members, more than the five-year average multiple of 14.1, data compiled by Bloomberg show.
Fourteen companies in the S&P 500 including Texas Instruments Inc. and Travelers Cos. report financial results today. Per-share profit for companies in the benchmark probably climbed 6 percent in the fourth quarter, while sales increased 2.2 percent, according to analysts surveyed by Bloomberg.
Of the 62 S&P 500 members that have reported results so far this season, 68 percent have beaten estimates for profit and 66 percent have exceeded sales projections, according to data compiled by Bloomberg.
The Chicago Board Options Exchange Volatility Index rose 3.5 percent today to 12.87. The gauge of S&P 500 options known as the VIX is down 6.2 percent this year.
Eight of 10 industries in the S&P 500 gained as utility companies climbed 1.2 percent for the biggest gain. Telephone shares dropped 0.7 percent for the worst performance.
J&J slipped 1.1 percent to $94.03. The world’s biggest maker of health-care products forecast 2014 profit of $5.75 to $5.85 a share, excluding one-time items. The outlook was below the $5.86 average of analysts’ estimates compiled by Bloomberg.
Verizon lost 1.3 percent to $47.70. The second-largest U.S. phone company added 1.6 million monthly subscribers during the fourth quarter, fewer than the record 2.1 million gained a year earlier. The average estimate was for 1.3 million new subscribers, based on a Bloomberg survey of nine analysts.
Travelers Cos. lost 1.7 percent to $85 after the insurer said rates charged to customers renewing their policies increased at a slower pace.
“The larger focus for investors today may be the clear headline pricing deceleration,” Randy Binner, an analyst at FBR Capital Markets, said in a research note. “The declining pricing trend has been a tough one for investors.”
Halliburton Co. slid 1.7 percent to $49.78. The energy services company said North American revenue will rise at a “mid-single digit” growth rate this year. The company in November predicted the expansion at a “high-single digit” pace.
Dow Chemical rallied 6.6 percent to $45.93. Third Point, the hedge fund led by billionaire Loeb, took a stake in the firm, calling for a share buyback and a spinoff of its petrochemicals business to improve profitability.
Third Point’s stake in Dow is the hedge fund’s largest current investment, Third Point said in a letter to investors, a copy of which was obtained by Bloomberg News. Dow should hire external advisers to review its strategy and the potential benefits of a spinoff, Third Point said.
Alcoa advanced 6.8 percent to $12.13. JPMorgan raised its rating on the largest U.S. aluminum producer to overweight, a recommendation similar to buy, from neutral. The brokerage boosted its 12-month price estimate for the stock to $15 from $9 and said increasing premiums and tightening supply will support the company’s earnings growth.
Delta Air Lines Inc. climbed 3.3 percent to a record $32.08 as earnings beat analysts’ estimates, helped by increased holiday travel, higher fares and lower fuel costs.
Chesapeake Energy Corp. advanced 3.9 percent to $26.45. The oil and gas company was raised to buy from neutral at SunTrust Robinson Humphrey Inc., which said Chesapeake has leading positions in three of the best U.S. gas fields and may sell lower-return assets such as its oilfield services unit.
Investors are the most upbeat about the global economy in almost five years, encouraged by the U.S.-led revival of industrialized nations, according to a Bloomberg Global Poll. Seventy-two percent in the survey of Bloomberg subscribers said the U.S. economy is improving, up from 53 percent a year ago.
Jeff Altman and John Paulson, two of last year’s best-performing hedge-fund managers, are predicting that stocks will continue their rally in 2014 even as the bull market approaches its sixth year. They’re among a number of top money managers betting markets are robust enough to weather a gradual reduction in the pace of the Federal Reserve’s asset purchases as the central bank signaled it will keep interest rates at their current low for the foreseeable future, according to interviews with more than half a dozen investors.
“The wind will continue to be at the markets’ backs with the Fed,” said Altman, head of the $3.2 billion Owl Creek Asset Management LP. He’s betting on telecommunications and aerospace companies, the same industries that helped him gain 49 percent last year, putting him in the top 10 of Bloomberg’s annual hedge fund ranking.