Bloomberg News

Most U.S. Stocks Drop Amid Earnings While Treasuries Advance

January 17, 2014

A Trader Monitors Data at the Frankfurt Stock Exchange

A financial trader monitors data on computer screens beneath a display of the DAX Index curve at the Frankfurt Stock Exchange in Frankfurt. Photographer: Ralph Orlowski/Bloomberg

Most U.S. stocks fell, sending the Standard & Poor’s 500 Index to a weekly loss, amid disappointing corporate earnings. The dollar rose to a four-month high and European shares closed at a six-year best.

The S&P 500 lost 0.4 percent at 4 p.m. in New York, as all 10 main industries retreated. The Dow Jones Industrial Average (INDU) gained 0.3 percent, as American Express Co. and Visa Inc. rallied. The Bloomberg Dollar Spot Index added 0.3 percent, the highest since September. The yield on 10-year Treasuries dropped to the lowest since December 10. The Stoxx Europe 600 Index climbed 0.6 percent. Oil rose to a two-week high in New York.

Intel Corp.’s revenue forecast raised concern the personal-computer market is struggling to grow, while Morgan Stanley reported profit that beat estimates. U.S. housing starts slowed less than forecast and industrial output rose a fifth straight month. A gauge of consumer sentiment unexpectedly fell. Federal Reserve Bank of Richmond President Jeffrey Lacker repeated that policy makers are likely to consider more reductions to the pace of bond buying. U.S. markets are closed for a holiday on Jan. 20.

“Investors are taking cues from earnings releases,” Jim Russell, who helps oversee $113 billion as a senior equity strategist for U.S. Bank Wealth Management, said by phone. “Just as important as fourth-quarter earnings are, many investors are watching for company guidance for signs on what early 2014 will bring. This year, we’ll see a tearing between winners and losers and we’ve seen that in this earnings season so far.”

Seven companies in the S&P 500 reported financial results today. Per-share profit for members in the benchmark probably climbed 6 percent in the fourth quarter, while sales increased 2 percent, according to analysts surveyed by Bloomberg.

Intel Forecast

Intel lost 2.6 percent after the world’s largest chipmaker forecast first-quarter revenue that may fall short of some analysts’ estimates as corporate demand fails to reignite personal-computer sales.

United Parcel Service Inc. dropped 0.6 percent after the shipping company projected fourth-quarter earnings that trailed analysts’ estimates. The company missed delivering packages over the peak holiday shopping season.

General Electric slipped 2.3 percent. Profit margins at the manufacturing divisions expanded 60 basis points, according to a presentation posted on GE’s website. That fell short of guidance for 70 basis points of growth that the company first laid out in December 2012 and affirmed as recently as last month.

Financial Earnings

Morgan Stanley, owner of the world’s largest brokerage, rose 4.4 percent. The firm also reported that profit from wealth management climbed to a record.

American Express jumped 3.6 percent to a record after the biggest credit-card issuer by purchases reported fourth-quarter profit doubled and Sanford C. Bernstein & Co. raised profit estimates. Visa Inc. rallied 4.7 percent to an all-time high.

The S&P 500 retreated 0.2 percent this week, extending its decline this year to 0.5 percent. The index trades at 15.6 times the estimated earnings of ts members, more than the five-year average multiple of 14.1, data compiled by Bloomberg show.

“Earnings since the beginning of the bull market in 2009 have kept pace with stock prices,” John Canally, economic strategist at LPL Financial Corp., said in a phone interview from Boston. His firm oversees about $414.7 billion. “This past year, you saw a big expansion in multiples and any more gains you have have to be met with higher earnings. Right now, we don’t have any reason to think companies won’t deliver the earnings.”

Dollar Advance

The dollar posted a weekly advance versus all except three of its 16 major counterparts. It rose 0.7 percent to $1.3528 per euro today, the strongest since November. The U.S. currency was little changed at 104.28 yen. It climbed to 105.44 yen on Jan. 2, the highest since October 2008. The euro dropped 0.7 percent to 141.08 yen.

The yield on 10-year Treasuries fell two basis points to 2.82 percent. Rates have fallen since reaching 3.05 percent on Jan. 2, a level unseen since July 2011.

Fed policy makers said on Dec. 18 they will cut monthly bond buying to $75 billion from $85 billion, citing an improving labor market. Officials makers next gather Jan. 28-29.

Lacker, who doesn’t vote on monetary policy this year, said on Jan. 10 that he “would expect a similar reduction in pace to be discussed at the upcoming meeting.

‘The Fed will continue tapering,’’ said Andy Ji, a Singapore-based currency strategist at Commonwealth Bank of Australia. ‘‘This week we had a bunch of data out of the U.S. showing that the improving trend hasn’t really changed.’’

Data Watch

A report today indicated industrial production rose for a fifth month in December, capping the strongest quarter since 2010. The Thomson Reuters/University of Michigan preliminary January index of consumer sentiment fell to 80.4 while economists in a Bloomberg survey estimated a reading of 83.5.

The pace of U.S. home construction dropped less than forecast last month, capping the best year for the industry since 2007.

The S&P GSCI Index of 24 commodities advanced 0.4 percent, extending its gain this week to 0.9 percent. Gold rose 0.9 percent for the biggest jump since Jan. 10, capping a fourth straight weekly advance.

West Texas Intermediate crude climbed 0.4 percent to $94.37 a barrel for the highest settlement since Jan. 2, on signs that economic growth in the U.S., the world’s biggest oil-consuming nation, is accelerating.

The MSCI Emerging Markets Index fell 0.3 percent, trimming the first weekly gain this month to 0.2 percent. The Sensex dropped 1 percent as Tata Consultancy Services Ltd., India’s most valuable company, slid 5.8 percent in Mumbai.

China, India

The Shanghai Composite Index retreated 0.9 percent, as China ended a 15-month freeze on new share sales. The Borsa Istanbul 100 Index fell to the lowest in three weeks.

The Stoxx 600 gained 1.8 percent this week, extending its advance gain so far this month to 2.3 percent. Basic-resources companies jumped the most, as all but two of 19 industry groups advanced.

Royal Dutch Shell Plc (RDSA), Europe’s biggest oil company, slid 0.9 percent today after saying that higher exploration costs and lower volumes will hurt fourth-quarter earnings. Essilor International SA lost 2.4 percent after the maker of lenses for glasses lowered its forecast sales growth for 2013.

Pandora A/S (PNDORA), the Danish maker of charm bracelets, jumped 2.8 percent after raising its sales and profitability forecasts for the second time in less than three months. Accor SA (AC) climbed 1.6 percent after Europe’s largest hotel operator said that profit probably reached the upper end of its forecast in 2013.

European Debt

The pound posted the biggest jump in a month against the dollar after U.K. retail sales increased more than forecast.

Securities from the euro region’s periphery are surging as their economies recover from the debt crisis that sparked a recession and pushed borrowing costs to euro-era records.

Ireland raised 3.75 billion euros selling 10-year bonds via banks last week, returning to financial markets after completing a three-year bailout program. Spain sold three-year notes at a record-low yield yesterday, while Portugal sold bills at the lowest yield since 2009 the day before.

Portugal’s 10-year yield fell six basis points today to 5.21 percent. Yields on similar-maturity Spanish bonds fell two basis points to 3.71 percent.

To contact the reporters on this story: Lu Wang in New York at lwang8@bloomberg.net; Jeremy Herron in New York at jherron8@bloomberg.net

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


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