S&P 500 Rises to Seven-Month High as Investors Await Payrolls

  • Claims data, ADP signal firmer labor market before May report
  • Health-care companies wipe out 2016 losses, led by J&J

U.S. stocks rose, with the S&P 500 reaching a seven-month high, amid signs of steady job gains that indicated the economy is strong enough for higher interest rates as early as this summer.

Equities extended a climb in the final hour of trading as health-care shares rallied to erase losses for the year, while retailers beaten down in May rebounded. Johnson & Johnson paced gains after agreeing to buy closely held Vogue International for about $3.3 billion. Signet Jewelers Ltd. tumbled 6.6 percent after negative comments in a newsletter, and Oracle Corp. sank the most this year after allegations of improper accounting practices.

The S&P 500 gained 0.3 percent to 2,105.26 at 4 p.m. in New York, the highest since Nov. 3, after erasing earlier losses of as much as 0.5 percent. The gauge closed above 2,100 for the first time since April 20. The Dow Jones Industrial Average added 48.89 points, or 0.3 percent, to 17,838.56. The Nasdaq Composite Index climbed 0.4 percent, extending an advance to seven days, the longest since February 2015. About 6.4 billion shares traded hands on U.S. exchanges, 11 percent below the three-month average.

“The bears would like the market to go down, but sentiment is too negative already,” Andrew Brenner, head of international fixed income at National Alliance Capital Markets in New York, said by phone. “The bulls would like the market to go up, but there are too many things on the horizon, which is why we’re going sideways. You have a lot of major stuff coming up in the market with investor sentiment extremely negative, and it doesn’t seem to go down.”

Investors have turned watchful amid a panoply of events, including meetings of the European Central Bank and Organization of Petroleum Exporting Countries in Vienna today, while the government’s monthly payrolls report is due tomorrow. June will also see the U.K. vote on whether to remain in the European Union and a possible interest-rate increase by the Federal Reserve. The benchmark index closed with a move of less than 0.5 percent for a fifth day, the longest stretch since November.

Data today signaled sustained firming in the labor market, with filings for unemployment benefits declining for a third consecutive week. An earlier report showed companies added 173,000 workers to payrolls in May, in line with economists’ forecasts.

A late-May flourish fed by optimism that the U.S. economy can shoulder higher rates helped the S&P 500 cap its longest stretch of monthly gains since 2014. The index has made little headway since then, hovering near levels that proved difficult to maintain in previous rallies, while investors await more indications on the vitality of U.S. growth. The benchmark has rebounded 15 percent from its 22-month low in February, closing today 1.2 percent away from a record hit last year.

Friday’s payrolls release looms large, with the potential for a solid report to further solidify expectations for higher borrowing costs by July. Economists surveyed by Bloomberg forecast employers added 160,000 jobs in May, the same as in April, with the unemployment rate slipping to 4.9 percent.

Rate Wagers

Data signaling a stronger American manufacturing on Wednesday was overshadowed by evidence of sluggish global growth. Traders are now pricing in a 53 percent chance the Fed will increase rates in July, while betting there’s a 22 percent probability the central bank will act this month, down from 34 percent last week.

“There’s so much for which to wait and watch for,” said Daniel Weston, chief investment officer of Aimed Capital in Munich. His firm oversees $30 million. “I don’t think there will be any black swans coming this month, but people will be very wary and take a bit of a defensive view while they wait for things to unfold.”

The CBOE Volatility Index fell 4 percent to 13.63, after a two-day climb. The measure of market turbulence known as the VIX dropped 9.6 percent in May, just its second monthly decline in the past seven.

Health-care shares were the strongest performers Thursday among the S&P 500’s 10 main industries, surging 1.3 percent. The group erased 2016 losses of as much as 12 percent, and extended their longest rally in 15 months. Energy producers slipped the most, followed by technology stocks and utilities. A Goldman Sachs Group Inc. basket of the most shorted shares in the Russell 3000 Index climbed for the eighth time in nine days, rising 7.7 percent during the period.

J&J Leads

Johnson & Johnson capped the best gain in six weeks after its deal to buy hair-care company Vogue International helped boost health-care. The company has led the group’s comeback from the lowest level since October 2014, rising more than 12 percent since Feb. 11.

Aetna Inc. added 4.1 percent, the most in six months. The health insurer plans to sell bonds in as many as eight parts to finance the cash portion of its $37 billion purchase of Humana Inc., which rallied 5.6 percent. The Nasdaq Biotechnology Index increased 1.9 percent to the highest since April 22.

Consumer discretionary companies advanced, lifted by a bevy of stocks that were hammered last month. L Brands Inc. jumped 4.3 percent after May sales exceeded estimates. The Victoria’s Secret parent tumbled 12 percent in May, the worst month since January 2014 amid concern spurred by weakening department-store sales. Macy’s climbed 4 percent, the most since January, after falling 16 percent last month.

Exxon Mobil Corp. fell 0.8 percent to pace energy’s slide, even as crude rose to a seven-month high, shrugging off OPEC’s failure to agree on a new output ceiling. Diamond Offshore Drilling Inc. lost 4 percent, falling for the fourth time in five days. Refiner Tesoro Corp. rose 1.8 percent after data showed gasoline and distillate stockpiles dropped more than forecast.

Oracle Slides

Oracle dropped 4 percent after a former senior finance manager claimed in a whistle-blower lawsuit she was instructed to add millions of dollars in accruals to cloud service financial reports. Oracle said it’s confident all its accounting is proper and correct. Apple Inc. decreased 0.8 percent after Goldman Sachs cut its price target on the iPhone maker’s shares, citing lower growth expectations for the smartphone industry. The stock fell for a fourth day, the longest losing streak in a month.

Among shares moving on corporate news, Ciena Corp. rallied 13 percent, the best one-day gain in two years, as quarterly results exceeded estimates and the current period’s revenue outlook beat some analysts’ forecasts.

Sarepta Therapeutics Inc. plunged 27 percent, after regulators increased patients’ access to experimental drugs such as its unapproved therapy for a deadly muscle disease, which investors took as a signal that the product may not be cleared.

Conn’s Inc. tumbled 26 percent to the lowest since 2011 after the electronics and appliances retailer unexpectedly posted a quarterly loss and the company named a new chief financial officer.

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