Bloomberg News

U.S. Stocks Rise as Jobs Data Signal Continued Stimulus

August 02, 2013

U.S. stocks rose, with the Standard & Poor’s 500 Index erasing an earlier decline, as data showing employers added fewer workers than anticipated in July signaled the Federal Reserve will continue its stimulus efforts.

American International Group Inc. (AIG:US) rallied 2.7 percent after saying it will pay its first dividend since 2008 and authorizing a share buyback of as much as $1 billion. LinkedIn (LNKD:US) Corp. surged 11 percent after increasing its full-year sales forecast. Dell (DELL:US) Inc. advanced 5.6 percent as Michael Dell agreed to sweeten his proposal to buy the computer maker with a special dividend. Chevron (CVX:US) Corp. slipped 1.2 percent after posting its biggest second-quarter profit decline in four years.

The S&P 500 (SPX) rose 0.2 percent to 1,709.67 at 4 p.m. in New York, advancing to a record in the final hour of trading and capping the weekly gain at 1.1 percent. The Dow Jones Industrial Average climbed 30.34 points, or 0.2 percent, to a record 15,658.36 today. About 5.7 billion shares changed hands, 11 percent lower than the three-month average.

“This number isn’t an earth-shaker,” John Manley, who helps oversee $222.7 billion as chief equity strategist for Wells Fargo Funds Management in New York, said in a phone interview. “It is debatable if it was good or bad. It was OK. The number still indicates the Fed is going to be there for a while, that is not bad.”

The 162,000 increase in payrolls last month was the smallest in four months and followed a revised 188,000 rise in June that was less than initially estimated, Labor Department figures showed today in Washington. The median forecast of 93 economists surveyed by Bloomberg called for a 185,000 gain. Workers spent fewer hours on the job and hourly earnings fell for the first time since October. The unemployment rate dropped to 7.4 percent from 7.6 percent.

Consumer Spending

Consumer spending rose in line with forecasts in June as Americans’ incomes grew, while orders placed with factories increased, pointing to further stabilization in manufacturing that may help lift second-half growth, separate reports showed.

Equities pared earlier losses as Federal Reserve Bank of St. Louis President James Bullard, who backed this week’s Fed decision to continue bond buying, said the central bank should wait for evidence the labor market and economy are strengthening before tapering purchases.

The S&P 500 climbed above the 1,700 level yesterday for the first time as central banks vowed to maintain stimulus efforts and data on global manufacturing beat forecasts. The benchmark gauge is trading at 15.5 times projected earnings, compared with an average of 13.9 over the last five years, according to data compiled by Bloomberg.

Market Breadth

About 83 percent of stocks in the index traded above their average prices from the past 50 days as of yesterday, according to data compiled by Bloomberg. While that’s below a 19-month high of 93 percent reached in May, it’s up from its 2013 bottom of 12.8 percent in June.

Some 115 S&P 500 stocks had their 14-day relative-strength index exceeding 70 yesterday, the most since May 21, Bloomberg data show. RSI measures the degree to which gains and losses outpace each other and some analysts who watch charts to predict market moves consider a reading over 70 as indicating the stock has risen too far too fast.

Three rounds of bond purchases by the Fed, coupled with improving earnings and economic growth, has helped propel the S&P 500 up more than 150 percent from its bear-market low in 2009. Speculation about the Fed’s monthly bond purchases has whipsawed stocks since May, when Chairman Ben S. Bernanke first indicated policy makers could begin reducing the stimulus this year if the job market continues to improve.

Fed Tapering

Fed officials said this week the labor market has shown “improvement,” while a report showed the U.S. economy grew more than projected in the second quarter. The central bank may begin tapering the pace of its asset purchases in September, according to a growing number of economists surveyed by Bloomberg from July 18 to July 22.

“The market will read today’s jobs report as part of the mixed data that’s shaping the Fed’s policy,” Stephen Wood, the New York-based chief market strategist who helps oversee about $237 billion at Russell Investments. “The pattern of economic growth looks more lumpy coming into this quarter. The market is going to turn its focus back to the earnings season and look at the revenue guidance with a microscope.”

Earnings Season

Chevron and Berkshire Hathaway Inc. are among nine S&P 500 companies reporting results today. Of the 390 companies in the gauge to have already reported quarterly earnings, 74 percent have exceeded analysts’ profit estimates and 56 percent have beaten sales projections, data compiled by Bloomberg show.

The Chicago Board Options Exchange Volatility Index (VIX), or VIX, dropped 7.4 percent today to 11.98, the lowest closing level since March 15. The equity volatility gauge reached its 2013 peak in June and has since fallen 42 percent.

Seven of the 10 main industries in the S&P 500 advanced, with consumer-discretionary, raw-materials and technology companies rising at least 0.5 percent to lead gains.

AIG jumped 2.7 percent to $48.33. The insurer that repaid a government bailout last year announced a quarterly dividend of 10 cents a share. It also posted net income (AIG:US) that climbed 17 percent to $2.73 billion in the second quarter.

LinkedIn surged 11 percent to $235.58. The operator of the biggest online professional-networking service said revenue jumped 59 percent to $363.7 million in the second quarter. That exceeded the average analyst estimate (LNKD:US) of $354.3 million.

Facebook Inc. rose 1.5 percent to $38.05, a closing price not seen since the social-networking company’s May 18, 2012, initial public offering. The stock had tumbled to a low of $17.55 in September, less than half the $38 IPO price.

Dell Buyout

Dell increased 5.6 percent to $13.68. Michael Dell and Silver Lake Management LLC agreed to increase their offer for the computer maker to $13.75 a share with a special dividend of 13 cents. Dell and Silver Lake had offered $13.65.

Sealed Air Corp. rallied 8.9 percent to $30.36 for the largest advance in the S&P 500. The packing-material maker reported second-quarter adjusted profit of 35 cents a share, beating the average analyst estimate of 25 cents.

Viacom Inc. (VIAB:US) jumped 6.5 percent to $79.17. The owner of cable networks MTV and Nickelodeon doubled its stock-buyback (VIAB:US) program to $20 billion and posted higher-than-estimated sales.

Charter Communications Inc. climbed 4.7 percent to $134. The fourth-largest U.S. cable company by subscribers has held talks about combining with rival Cox Communications Inc., according to two people with knowledge of the matter.

Charter and its shareholder Liberty Media Corp. are still pursuing an acquisition of Time Warner Cable Inc., the people said. Time Warner Cable, which has been resistant to a combination with Charter, slipped 0.5 percent to $117.10.

Cablevision Gains

Cablevision Systems Corp. climbed 5.2 percent to $19.61 even after the fifth-largest U.S. cable provider reported second-quarter sales that missed analysts’ estimates. The stock climbed 25 percent this year through yesterday, driven by speculation it may be an acquisition target.

Chief Executive Officer James Dolan said on the earnings call that “you never say never” to potential mergers and acquisitions.

Energy companies fell 0.6 percent as a group, the most in the S&P 500. Chevron slipped 1.2 percent to $124.95. The world’s second-largest energy company by market value missed analysts’ estimates as crude oil prices and production fell.

Eaton Corp. slid 5.5 percent to $66.06. The equipment maker cut the high end of its 2013 forecast, saying it expects to earn no more than $4.25 a share. Analysts estimated $4.33 on average.

CareFusion (CFN:US) Corp. tumbled 6 percent, the most in the S&P 500, to $36.61. Smiths Group said talks with a “potential counterparty” to sell its medical equipment division had collapsed. The U.S. maker of medical pumps, ventilators and medicine dispensers was a potential buyer for the U.K. technology company’s unit, the Financial Times said in May.

To contact the reporters on this story: Lu Wang in New York at lwang8@bloomberg.net; Katie Brennan in New York at kbrennan23@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net


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Companies Mentioned

  • AIG
    (American International Group Inc)
    • $56.42 USD
    • 0.14
    • 0.25%
  • LNKD
    (LinkedIn Corp)
    • $235.25 USD
    • 3.42
    • 1.45%
Market data is delayed at least 15 minutes.
 
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