Bloomberg News

S&P 500 Has Year’s Biggest Gain on Retail Sales, Mergers

January 14, 2014

S&P 500 Heads for Best Gain of 2014 on Retail Sales Amid Mergers

Traders work on the floor of the New York Stock Exchange on Jan. 14, 2014. Photographer: Spencer Platt/Getty Images

U.S. stocks rose, giving the Standard & Poor’s 500 Index its biggest gain of the year, as better-than-forecast retail sales and corporate merger activity signaled confidence in the economy.

Intel Corp. and Jabil Circuit Inc. paced gains among technology companies, rising at least 4 percent amid analyst upgrades. Google (GOOG:US) Inc. added 2.4 percent after agreeing to buy digital-thermostat maker Nest Labs Inc. for $3.2 billion in cash. Time Warner Cable Inc. climbed 2.7 percent after rejecting an acquisition offer from Charter Communications Inc. JPMorgan Chase & Co. and Wells Fargo & Co. were little changed after reporting fourth-quarter results.

The S&P 500 (SPX) added 1.1 percent to 1,838.88 at 4 p.m. in New York, posting the biggest jump since Dec. 18 and erasing most of yesterday’s loss. The Dow Jones Industrial Average gained 115.92 points, or 0.7 percent, to 16,373.86. About 6.5 billion shares changed hands on U.S. exchanges, 7.7 percent above the 30-day average.

“We’re probably at the stage in the stock market cycle where good news will continue to be seen as good news,” Martin Leclerc, founder of Barrack Yard Advisors LLC, which oversees $270 million, said in a telephone interview. “I would say that after this massive move we’ve had, it does feel like the animal spirits are still resurrected.”

The S&P 500 fell 1.3 percent yesterday, the most since November, as investors weighed valuations after a 30 percent rally last year that sent the gauge to a record. The benchmark index dropped 1.6 percent in January through yesterday for the worst start to a year since 2009.

The index trades at 15.6 times the estimated earnings of its members, more than the average multiple of 14.1 over the last five years, data compiled by Bloomberg show. The S&P 500 ended 2013 at its highest valuation since the end of 2009.

Corporate Earnings

Wells Fargo and JPMorgan are among companies reporting financial results today. Bank of America Corp., Citigroup Inc. and Goldman Sachs Group Inc. report later this week. Earnings for companies in the index probably climbed 4.9 percent on average in the fourth quarter, while sales increased 1.8 percent, according to analyst estimates compiled by Bloomberg.

“Earnings are going to dominate for the next two or three weeks,” Patrick Kaser, a managing director and portfolio manager at Brandywine Global Investment Management in Philadelphia, said by phone. His firm oversees about $50 billion. “People are concerned about the rate of growth in the economy. How we finished the quarter going into January, that’s going to matter the most for where we are right now.”

Economic Data

U.S. retail sales increased 0.2 percent after a 0.4 percent advance in November that was smaller than previously reported, Commerce Department figures showed today in Washington. The median forecast of 86 economists surveyed by Bloomberg called for a 0.1 percent gain. Excluding cars, demand jumped by the most in almost a year.

Investors are watching economic data for signals on the pace of Federal Reserve stimulus cuts. Three rounds of monetary stimulus from the central bank 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.

A government report on Jan. 10 showed employment rose in December at the slowest pace in almost three years. The data ended months of improving job growth that had signaled the world’s largest economy was picking up.

Stocks extended losses yesterday after Fed Bank of Atlanta President Dennis Lockhart said weak payroll growth last month shouldn’t discourage policy makers from reducing monthly bond purchases as long as the economy continues to gain strength.

‘Beer Goggles’

Philadelphia Fed President Charles Plosser said today that the central bank’s stimulus program should end later this year because the economy is on a “firmer footing” than it has been in the past several years.

Richard Fisher, Fed president in Dallas, likened quantitative easing to “beer goggles” that makes everything look good. There are signs that “we have made for an intoxicating brew as we have continued pouring liquidity down the economy’s throat,” he said in a speech today.

The Chicago Board Options Exchange Volatility Index (VIX), which measures expected swings on the S&P 500 using options prices, dropped 7.5 percent today to 12.28. The gauge is down 11 percent this year.

Tech Rally

All 10 main industries in the S&P 500 advanced. The Morgan Stanley Cyclical Index climbed 1.4 percent, reversing a 1.4 percent drop yesterday. The Dow Jones Transportation Average added 1.3 percent, the most since Oct. 16. Microsoft Corp., Visa Inc., 3M Co. and Walt Disney Co. increased at least 1.6 percent to pace gains among the largest companies.

The Nasdaq-100 Index jumped 1.9 percent, the most since Oct. 10, as technology companies in the S&P 500 rallied 1.9 percent as a group.

Intel rose 4 percent to $26.51 for the biggest increase in the Dow. The maker of computer chips was raised to overweight from neutral by Christopher Danely, an analyst with JPMorgan (JPM:US) Chase, on expectation the personal-computer market will remain stable this year and new Chief Executive Officer Brian Krzanich will focus on areas where Intel has an advantage.

Jabil Circuit advanced 7.8 percent to $17.89. The maker of electronics for Apple Inc. was boosted to buy from neutral by Goldman Sachs.

Google Purchase

Google Inc. added 2.4 percent to $1,149.40, an all-time high, after saying it will buy Nest Labs. The deal is contributing to greater confidence among venture-capital firms, which often bet on companies before they have revenue or even a product.

Proposed deals by companies including Charter and Google brought the value of takeover offers worldwide this year to $130 billion, data compiled by Bloomberg show.

Time Warner Cable (TWC:US) rose 2.7 percent to $136. The broadband-service provider’s chief executive officer, Rob Marcus, called Charter’s $132.50-a-share bid a “low-ball offer.” The proposal included about $83 cash per share and about $49.50 in stock. Excluding debt, the deal would have been worth $37.3 billion.

Intuitive Surgical Inc. rallied 6.8 percent to $419.88. The maker of robot surgery systems said fourth-quarter revenue was $576 million, beating the average analyst estimate of $549.1 million in a Bloomberg survey.

Regeneron, Tesla

Regeneron Pharmaceuticals Inc. (REGN:US) jumped 12 percent to $300.32 for the biggest increase in the S&P 500. Sales of the eye drug Eylea (REGN:US), the company’s top-selling product, were about $400 million last quarter, Chief Executive Officer Len Schleifer said. That exceeded the $377.5 million average of eight analysts’ estimates compiled by Bloomberg.

Tesla Motors Inc. surged 16 percent to $161.27, the highest level in two months. The maker of high-end electric cars delivered 6,900 Model S sedans in the fourth quarter, lifting full year sales of the vehicle beyond the company’s target.

JPMorgan added less than 0.1 percent to $57.75. Quarterly profit fell 7.3 percent on $2.6 billion of settlements tied to Bernard Madoff’s Ponzi scheme as rising legal costs ended the firm’s three-year streak of record annual earnings.

Wells Fargo rose less than 0.1 percent to $45.59. The largest U.S. home lender posted record fourth-quarter and full-year profit as expense cuts and one-time gains bolstered results.

While Wells Fargo’s profit was enough to beat the consensus of Wall Street analysts, mortgage applications plunged and Oppenheimer & Co.’s Chris Kotowski said in a note to clients that results were helped by reserve releases and gains on securities.

GameStop (GME:US) Corp. plunged 20 percent, the most in the S&P 500, to $36.31. The largest specialty retailer of video games cut its full-year profit forecast amid lower-than-anticipated software sales and reduced gross margin from Sony Corp.’s PlayStation 4 and Microsoft Corp.’s Xbox One consoles during the holiday shopping period.

To contact the reporters on this story: Lu Wang in New York at lwang8@bloomberg.net; Callie Bost in New York at cbost2@bloomberg.net

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


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Companies Mentioned

  • GOOG
    (Google Inc)
    • $596.08 USD
    • 6.81
    • 1.14%
  • JPM
    (JPMorgan Chase & Co)
    • $61.11 USD
    • -0.21
    • -0.34%
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