S&P 500 Rises for Week as Earnings Optimism Offsets Jobs

The Standard & Poor’s 500 Index rose for the week, following the worst losing streak to start a year since 2005, as optimism over economic growth and corporate earnings overshadowed a weaker-than-forecast jobs report.

Forest Laboratories Inc. and McKesson Corp. paced gains among health-care companies, jumping at least 9.2 percent on deals activity. Intercept Pharmaceuticals Inc. soared more than sixfold after a trial of its liver disease drug worked well enough for the testing to be stopped. Alcoa Inc. and Chevron Corp. slipped more than 2.7 percent as earnings disappointed. Phone stocks fell after T-Mobile US Inc. announced a plan to pay off early-termination fees to attract subscribers.

The S&P 500 rose 0.6 percent to 1,842.37 for the five days. The benchmark index reached an all-time high in the previous week, before falling three straight days to start the year. The Dow Jones Industrial Average lost 32.94 points, or 0.2 percent, to 16,437.05 for the week.

“The fact that the market is consolidating at this high of a level is actually very bullish,” Doug Foreman, chief investment officer at Kayne Anderson Rudnick Investment Management in Los Angeles, said by phone. His firm oversees about $8 billion. “The catalyst could be continued good profitability at sustained high rates in a fairly benign interest-rate environment, with lots of innovations in lots of industries. That’s usually a prescription for stock outperformance.”

Stimulus Reduction

Three rounds of monetary stimulus from the Federal Reserve have helped push the S&P 500 higher by 172 percent from a 12-year low in 2009. The Fed, which next meets Jan. 28-29, last month announced a reduction in its monthly bond-buying program, citing a recovery in the labor market.

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,” minutes showed Jan. 8.

A report from the Labor Department on Jan. 10 showed employment rose in December at the slowest pace in almost three years, in part because bad weather blanketed the U.S. The data ended months of improving job growth that had signaled the world’s largest economy was picking up. The unemployment rate declined to 6.7 percent, the lowest since October 2008, as more people left the labor force.

Accelerating Growth

Economists forecast the U.S. economy will grow at a 2.6 percent rate this year after a 1.7 percent advance in 2013. The International Monetary Fund plans to raise its forecast for global economic expansion this year, underscoring confidence as the outlook for the U.S. improves. IMF Managing Director Christine Lagarde said on Jan. 7 that the revision will take place in three weeks.

“We won’t see a rising tide float all boats as the Fed begins to taper,” Kristina Hooper, a U.S. investment strategist at Allianz Global Investors in New York, said in a phone interview. The firm oversees $436 billion. “What’s been holding up stocks was largely quantitative easing. Now we’re going to see a hand-off to fundamentals supporting stocks.”

Alcoa unofficially kicked off the fourth-quarter earnings season on Jan. 9. Analysts forecast profits for S&P 500 companies grew by 4.9 percent in the period while sales increased 1.8 percent, according to data compiled by Bloomberg.

JPMorgan Chase & Co., Bank of America Corp. and Goldman Sachs Group Inc. are among 29 S&P 500 companies that are scheduled to report results in the coming week.

‘10 Surprises’

After the S&P 500 surged 30 percent last year for the biggest annual gain since 1997, Blackstone Group LP’s Byron Wien joined Citigroup Inc.’s Tobias Levkovich in cautioning investors about a possible correction, or a decline of 10 percent or more from a peak.

The benchmark index will slump in coming months before rallying to end the year up about 20 percent, Wien, vice chairman of Blackstone’s advisory services unit, said in his annual “10 Surprises” list.

The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options known as the VIX, tumbled 12 percent to 12.14 for the week, the lowest level since Aug. 5.

Seven of 10 main S&P 500 groups gained for the week, with health-care and utility companies jumping more than 2.5 percent.

Investors snapped up utility stocks, which offer the second-biggest dividend yield among the 10 industries, as benchmark Treasury rates dropped to a three-week low, boosting the allure of equity income.

Drugmakers Rally

Forest Laboratories surged 16 percent to $69. The maker of the Alzheimer’s drug Namenda said it will buy Aptalis Pharma for $2.9 billion, adding treatments for gastrointestinal ailments and cystic fibrosis.

McKesson advanced 9.2 percent to $175.44 after raising its bid for German drug distributor Celesio AG, winning support from U.S. hedge fund Elliott Management Corp., which opposed the original offer as too low. The sweetened bid ends a stalemate that threatened to derail McKesson’s plan to expand in Europe.

Intercept soared $376.66 to $445.83. The company’s obeticholic acid, or OCA, treats nonalcoholic steatohepatitis, or NASH, a liver disease in which people who don’t drink or drink very little alcohol suffer damage that resembles that of heavy drinkers. Bank of America raised the stock’s price target to $872 from $81.

CEO Race

Ford Motor Co. gained 3.6 percent to $16.07 after Chief Executive Officer Alan Mulally ruled himself out from a race for the top job at Microsoft Corp. The automaker boosted its quarterly dividend to 12.5 cents a share from 10 cents.

Shares of Microsoft retreated 2.4 percent to $36.04.

Macy’s Inc. advanced 4.3 percent to $55.84. The second-largest U.S. department-store company forecast earnings for its next fiscal year ahead of estimates and disclosed a program to cut costs that includes eliminating about 2,500 jobs.

Alcoa slumped 4.4 percent to $10.11. The largest U.S. aluminum producer reported fourth-quarter profit that missed forecasts because of a glut of rolled metal used in the aerospace industry.

Chevron Corp. declined 2.7 percent to $121.01. The world’s second-largest energy company by market value said it will report a drop in fourth-quarter earnings after oil and natural-gas production declined amid slumping prices.

Phone companies in the S&P 500 slumped 2.2 percent for the worst performance. T-Mobile US said it will pay the fees of customers switching from AT&T Inc., Sprint Corp. or Verizon Wireless. Families could save as much as $650 per line, the company said.

Phone Shares

AT&T dropped 3.4 percent, the most in the Dow, to $33.62 and Sprint lost 4.8 percent to $9.46. Verizon Communications Inc., which owns a stake in Verizon Wireless, fell 1.4 percent to $47.75.

Bed Bath & Beyond Inc. fell 13 percent to $69.94 for the biggest loss in the S&P 500. The retailer forecast fourth-quarter profit that trailed analysts’ estimates.

Twitter Inc. slumped 17 percent to $57. The microblogging service was hit with analyst downgrades and Cowen & Co. initiating coverage of the stock with the equivalent of a sell rating. Twitter may not attract enough advertising dollars as customers see better results from rivals Facebook Inc. and LinkedIn Corp., according to Cowen’s note.

Twitter shares debuted in November and rallied 145 percent through the end of 2013.

Before it's here, it's on the Bloomberg Terminal.