U.S. Stocks Rise to 5-Year High on Earnings Before ObamaLeslie Picker and Lu Wang
U.S. stocks advanced, sending benchmark indexes to five-year highs, as earnings topped estimates and investors awaited President Barack Obama’s State of the Union address.
Bank of America Corp. and Citigroup Inc. gained at least 2.8 percent as banks rallied. Avon Products Inc. soared 20 percent amid better-than-estimated profit and a plan to consider options for its Silpada jewelry unit. Michael Kors Holdings Ltd. rose 8.8 percent after raising its forecast in anticipation of a jump in same-store sales. Coca-Cola Co. fell 2.7 percent as volume sales missed forecasts. Apple Inc. lost 2.5 percent.
The Standard & Poor’s 500 Index gained 0.2 percent to 1,519.43 at 4 p.m. in New York. The Dow Jones Industrial Average increased 47.46 points, or 0.3 percent, to 14,018.70. Both gauges closed at the highest level since 2007. About 5.9 billion shares traded hands on U.S. exchanges today, 3.7 percent lower than the three-month average.
“This market is front-running better economic and earnings news,” John Augustine, who helps manage $27 billion as chief market strategist at Cincinnati-based Fifth Third Bancorp, said in a phone interview. “We all think of a correction coming in February. Guess what, we probably won’t get a correction in February. This market has got upward momentum.”
About 74 percent of the 355 companies in the S&P 500 that have released results during the earnings season have exceeded profit projections, and 66 percent have beaten sales estimates, data compiled by Bloomberg show.
The S&P 500 has rallied 6.5 percent in 2013 as U.S. lawmakers reached a budget compromise. It has more than doubled since bottoming in March 2009 as the Federal Reserve conducted three rounds of bond-buying to lower interest rates and boost economic growth.
The gauge is 2.9 percent below its record of 1,565.15 reached in October 2007, while the Dow is about 1 percent from its all-time high of 14,164.53.
“Every strategist I’ve talked to says that we’re due for a 5 percent, 7 percent correction, and the reason why we haven’t seen it is because investors are buying on dips,” Diane Jaffee, the New York-based group managing director for U.S. equities who oversees about $5.9 billion in assets at TCW Group Inc., said in a phone interview. “The thought process is that people are willing to forgo the first 10 or 20 percent of the market rise to make sure it will really do it, and now they want in for the last 20 or 30 percent because they have more confidence.”
Obama is due to deliver his State of the Union address at 9 p.m. in Washington. He will make proposals for spending on infrastructure, clean energy and education, according to an administration official briefed on the speech. Obama will argue that fostering economic growth remains the best strategy to narrow a federal budget gap that has exceeded $1 trillion in each of the last four years.
Seven of the 10 industry groups in the S&P 500 rose today as financial, phone and industrial companies performed the best, adding at least 0.4 percent. The Morgan Stanley Cyclical Index, a measure of companies whose earnings are most tied to economic swings, climbed 1 percent.
The Chicago Board Options Exchange Volatility Index, which measures the cost of using options as insurance against declines in the S&P 500, fell 2.3 percent to 12.64.
The KBW Bank Index, made up of 24 U.S. lenders, gained 1.1 percent. Bank of America advanced 3.3 percent to $12.25, Citigroup jumped 2.8 percent to $44.35 and Goldman Sachs Group Inc. gained 1.2 percent to $154.11. All three banks reached their highest levels since 2011. JPMorgan Chase & Co. added 1 percent to $49.14, it’s highest price since October 2008.
Investors are the most optimistic on banks since the top of the bull market in 2007, bolstered by record-low interest rates and an improving outlook for global growth and profits, a Bank of America Corp. survey showed. A net 6 percent of global fund managers, who together oversee about $555 billion, said they were overweight banks, the highest since February 2007.
Goldman Sachs Chief Financial Officer Harvey M. Schwartz said the banking industry’s average return on equity will rise above 12 percent as some firms shrink or exit businesses.
“I think the industry will migrate to higher returns because it will have to,” Schwartz, 48, said today at the Credit Suisse Financial Services Forum in Miami. It might be a “question of excess capacity coming out over a long period of time,” he said.
Avon Products jumped $3.51 to $20.79 for the biggest gain since at least 1974. The world’s largest door-to-door cosmetics seller reported fourth-quarter adjusted profit that topped analysts’ estimates as new Chief Executive Officer Sheri McCoy trimmed costs. McCoy said on a conference call that she would seek strategic alternatives for the company’s Silpada jewelry unit, where sales fell 18 percent in the fourth quarter.
Michael Kors, named for the designer who founded the company, increased $5 to $62. Profit excluding certain items will be as much as $1.82 a share in fiscal 2013, compared with a previous estimate of as much as $1.50, Michael Kors said. Analysts estimated $1.57 a share, according to the average of 14 projections compiled by Bloomberg.
Masco Corp. rallied 12 percent to $20.01 for the second-largest gain in the S&P 500. The home improvement and building products maker reported fourth-quarter earnings and sales that exceeded analysts’ estimates.
An S&P 500 gauge of homebuilders advanced 4.5 percent, the most since December, as all of its 11 members gained. D.R. Horton Inc. jumped 4.9 percent to $24.05, PulteGroup Inc. added 5.3 percent to $20.32 and Lennar Corp. increased 4.1 percent to $40.87.
Fossil Inc. rose 3 percent to $110.65 after the maker of the namesake watch brand said its fourth-quarter sales increased 14 percent to a record $947.7 million, surpassing estimates.
J.M. Smucker Co. gained 2.5 percent to $90.92 after the Orrville, Ohio-based food products company was raised to outperform, the equivalent of a buy, from market perform by Alexia Howard, an analyst with Sanford C. Bernstein & Co.
Coca-Cola lost $1.05 to $37.56 for its biggest drop since October 2011. The world’s largest soft-drink maker said global volume sales rose 3 percent during the fourth quarter. That missed the 5.4 percent growth estimated by Mark Swartzberg, an analyst at Stifel Nicolaus & Co.
Facebook Inc. declined 89 cents to $27.37. Carlos Kirjner, an analyst at Sanford C. Bernstein in New York, downgraded the stock to market perform, the equivalent of hold, from outperform, citing a potential slowdown in price-per-ad growth in North America and Europe. BTIG LLC analyst Rich Greenfield also cut the social network, to sell from neutral, saying its mobile growth was not enough.
Apple retreated $12.03 to $467.90, ending a three-day rally. Chief Executive Officer Tim Cook said the iPhone maker will “thoroughly consider” a push by Greenlight Capital Inc.’s David Einhorn to use some of its $137.1 billion in cash and securities for preferred stock. The shares have lost more than 30 percent from a record in September amid concern over slowing sales growth and tightening competition.
Dun & Bradstreet Corp. sank 7.7 percent, the most in the S&P 500, to $78.68. The 171-year-old provider of business data and risk-management services reported fourth-quarter earnings that missed analysts’ estimates on sluggish North American sales.
“Now is an opportune time for investors to shift their focus to value” when looking at U.S. stocks, according to Brian Belski, chief investment strategist at BMO Capital Markets.
Belski’s recommendation reflects a transition that started last year. Shares with low prices relative to sales, earnings and asset values are faring better than those of faster-growing companies, according to a comparison of S&P 500 value and growth indexes. The ratio between these indexes, which the New York-based analyst cited in a Feb. 8 report, has climbed 7.6 percent from last year’s low. Even so, it’s below the average end-of-month reading for the past 20 years.
Belski isn’t alone among market strategists in preferring value to growth. Wells Fargo & Co.’s Gina Martin Adams, also based in New York, wrote yesterday in a report that she saw last year’s shift toward value stocks as a turning point.
“We suspect value will continue to have the edge over growth in the months ahead,” she wrote. Shrinking productivity gains point to that conclusion, the report said, as they weigh more heavily on growth companies. Fourth-quarter productivity rose from a year earlier by 0.6 percent, trailing the third quarter’s 1.8 percent gain, Labor Department data showed.
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