S&P 500 Rebounds From Worst Loss Since June Amid Earnings
U.S. stocks advanced, with the Standard & Poor’s 500 Index rebounding from its biggest drop since June, as investors assessed corporate earnings and data showing factory orders fell less than estimated in December.
Yum! Brands Inc. (YUM) climbed 8.9 percent after the fast-food retailer reported profit that beat estimates. Michael Kors Holdings Ltd. rallied 17 percent as the luxury-goods maker increased its profit and sales forecasts. Pfizer (PFE) Inc. advanced 2.8 percent amid an analyst upgrade. J.C. Penney Co. plunged to the lowest level since 1980 after same-store sales rose less than analysts’ estimated.
The S&P 500 climbed 0.8 percent to 1,755.20 at 4 p.m. in New York. The Dow Jones Industrial Average (INDU) added 72.44 points, or 0.5 percent, to 15,445.24. About 7.6 billion shares changed hands on U.S. exchanges, 21 percent above the three-month average.
“Main Street is still chugging along. Earnings have been fine,” Ethan Anderson, senior portfolio manager at Rehmann Financial in Grand Rapids, Michigan, said in a phone interview. His firm oversees $1.5 billion. “You put all these together and I’m just not seeing anything that’s suggesting that the train is off the track. We’re pretty much in a very healthy pullback. To me, it’s refreshing.”
The S&P 500 sank 2.3 percent yesterday, as a manufacturing gauge retreated more than estimated, raising concern about the strength of growth in the world’s largest economy. The equities benchmark slipped 5.8 percent since its Jan. 15 record through yesterday, giving it the first drop of at least 5 percent since June. The Dow average plunged 326 points yesterday, bringing its retreat this year to 7.3 percent.
The Dow has risen 0.5 percent on average the day after a loss of more than 300 points during the bull market that began in March 2009, according to data from Bespoke Investment Group LLC. The average 5 percent decline in the S&P 500 (SPX) during that time has lasted 25 days and extended to a drop of 8.2 percent, the data show.
The losses this year had wiped more than $1.2 trillion off U.S. share prices amid signs of slowing growth in China and as the Argentinian government’s decision to allow the peso to devalue triggered a rout in emerging-market currencies. The Federal Reserve last week decided to press on with reductions in its monthly bond-buying program.
“The biggest concern for investors right now is, is this the beginning of a bigger pullback in the market?” Joseph Tanious, a global market strategist at JPMorgan Asset Management in New York, said by phone. His firm oversee $1.5 trillion in client assets. “If you look at economic growth, the earnings season and the health of corporate America, all those things appear to be doing quite well. Our advice to investors is to use the dip as the buying opportunity.”
Orders for factory goods in December fell 1.5 percent, less than the average economists’ estimate of a 1.8 percent decline in a Bloomberg survey, data from the Census Bureau showed today.
The U.S. will post the narrowest budget deficit this year as a share of the economy since 2007 as stronger growth helps boost tax revenue, according to the Congressional Budget Office. The deficit will decline to $514 billion this fiscal year, or 3 percent of the economy, the office forecast.
Investors snapping up insurance against stock losses have pushed the cost of options to a record increase for the start of a year. The Chicago Board Options Exchange Volatility Index jumped 34 percent last month for the biggest January advance since it was created in 1990, according to data compiled by Bloomberg. The VIX plunged 11 percent today, the most since Dec. 18, to 18.65 after climbing 16 percent yesterday to a one-year high.
Fed policy makers said on Jan. 29 that the central bank will reduce its monthly bond purchases by $10 billion to $65 billion, cutting the pace of stimulus for a second straight meeting because of an improving economy.
Fed Bank of Richmond President Jeffrey Lacker said today that a decline in global stock markets probably won’t deter the Fed from further trimming bond purchases.
Three rounds of Fed bond buying have helped drive the S&P 500 up 159 percent from a 12-year low in 2009 while pushing capital into emerging markets in search of higher returns. The S&P 500 surged 30 percent last year, driving valuations to near the highest levels since 2009.
Some 25 companies on the S&P 500 report quarterly results today. Profit for the benchmark’s stocks probably increased by 8.3 percent in the fourth quarter of 2013 and revenue by 2.5 percent, analysts’ estimates compiled by Bloomberg show.
Nine out of 10 S&P 500 main industries advanced as consumer-discretionary, telephone and health-care shares jumped more than 1 percent to lead the rebound. Merck & Co. climbed 2.8 percent to $53.51 for the biggest increase in the Dow. The second-largest U.S. pharmaceuticals company is scheduled to announce earnings tomorrow.
Yum Brands rose 8.9 percent to $72.06. The owner of the KFC and Taco Bell fast-food chains posted profit excluding some items of 86 cents a share in the final three months of 2013, more than the 79-cent average analyst projection compiled by Bloomberg. Sales at restaurants open at least a year for its international unit, which includes France and Russia, climbed 2 percent in the period.
Michael Kors jumped 17 percent to a record $89.91. Annual earnings will probably reach as much as $3.09 a share, more than a November forecast for profit of $2.81 at most, according to a statement today. The company also boosted its full-year sales forecasts after customers in Europe and in North America bought more of its products, which include accessories, footwear, watches and jewelry.
Fossil Inc., the maker of the namesake watch brand, gained 6.1 percent to $114.57.
Pfizer climbed 2.8 percent to $31.44. The world’s largest drugmaker will likely announce more details on a new organizational structure and launch its breast cancer treatment, palbociclib, later this year, Jeffrey Holford, an analyst with Jefferies Group LLC, wrote in a note. He raised the stock’s rating to buy from hold.
McGraw Hill Financial Inc. rose 3.5 percent to $77.02, leading gains among financial companies. The parent of the Standard & Poor’s reported fourth-quarter profit that exceeded analysts’ estimates even as company bond sales slowed.
J.C. Penney slumped 11 percent to $5.08, the lowest level since December 1980. The department-store chain said sales at locations open at least a year rose 2 percent in the fiscal fourth quarter. That missed the average 4.1 percent gain projected by analysts in a Bloomberg survey.
Take-Two Interactive Software Inc. (TTWO), maker of the “Grand Theft Auto V” video game, tumbled 9.7 percent to $17.06. The company forecast profit would not exceed 10 cents a share this quarter, missing the average analyst projection of 13 cents. Take-Two estimated revenue of $170 million to $200 million, also falling short of estimates.
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