U.S. Stocks Snap Three-Day Decline as Hospitals, Insurers Gain

Jan 07, 2014 4:32 pm ET

Jan. 7 (Bloomberg) -- U.S. stocks rose, snapping a three- day retreat, as hospital and health-insurance stocks rallied ahead of Friday’s employment report and the start of fourth- quarter earnings season this week.

UnitedHealth Group Inc. and Johnson & Johnson rose more than 2.1 percent, leading gains in the Dow Jones Industrial Average, after brokerages raised their stock ratings. Pharmacyclics Inc. jumped 20 percent after its leukemia medicine met a trial’s goals. Netflix Inc. slid 5.6 percent as Morgan Stanley said the company faces more competition.

The Standard & Poor’s 500 Index advanced 0.6 percent to 1,837.88 at 4 p.m. in New York. The gauge lost 1.2 percent from Jan. 2 through yesterday, the longest stretch of declines to start a year since 2005. The index climbed 30 percent last year, the most since 1997. The Dow average added 105.84 points today, or 0.6 percent, to 16,530.94.

“Equities are the place to be,” John Lynch, the Charlotte-based regional chief investment officer for Wells Fargo Private Bank, said by telephone. His firm manages $170 billion. “Everyone’s waiting on the Fed minutes tomorrow and the jobs report on Friday could be a driver of further confidence.”

Alcoa Inc. will mark the unofficial start of the fourth quarter earnings season when it reports results after the market close on Jan. 9. Earnings for companies in the S&P 500 will climb 9.7 percent on average this year, almost twice the rate of 2013, while sales will probably increase 3.8 percent, according to analyst estimates compiled by Bloomberg.

Bull Market

The ADP Research Institute reports the change in companies’ payrolls tomorrow and minutes from the Federal Reserve’s December meeting will be released the same day. The Labor Department will provide the unemployment rate and new hiring figures for last month on Friday. The Fed, which has made job creation a condition for reducing asset purchases, said on Dec. 18 that it would slow the pace of bond buying.

Three rounds of stimulus have helped propel the S&P 500 higher by as much as 173 percent from a 12-year low in 2009. Janet Yellen won Senate confirmation with a 56-26 vote to become the 15th chairman of the Fed. She will replace Ben S. Bernanke, whose second term as chairman expires Jan. 31.

Data today showed the trade deficit in the U.S. shrank more than forecast in November as oil imports dropped to the lowest level in three years and exports climbed to a record. The gap narrowed 12.9 percent to $34.3 billion, smaller than projected by any economist surveyed by Bloomberg and the least since October 2009, figures from the Commerce Department showed today in Washington.

VIX Falls

“Sentiment is still very high,” said Francois Savary, who oversees about $9.4 billion as chief investment officer at Reyl & Cie. in Geneva. “The key question now will be to see if earnings growth really does come through. When you have less liquidity in the system and good economic numbers to support the recovery, it’s time for companies to deliver.”

The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options known as the VIX, fell 4.7 percent to 12.92.

Nine out of 10 main industries in the S&P 500 rose as health-care stocks added 1 percent to pace gains. Almost four stocks rose for each that declined in the U.S. equity benchmark. About 6.7 billion shares changed hands on U.S. exchanges, 11 percent above the three-month average.

Hospitals, Insurers

UnitedHealth climbed 3.1 percent to $76.51. The largest publicly traded U.S. insurer was raised to buy from hold by analysts at Deutsche Bank AG. J&J, the world’s biggest maker of health-care products, increased 2.1 percent to $94.29 as RBC Capital Markets boosted the stock to outperform from sector perform.

Tenet Healthcare Corp. rallied 4.9 percent to $46.10 and HCA Holdings Inc. advanced 2.7 percent to $49.85. Credit Suisse, which rates both companies outperform, advised buying hospital stocks on any weakness.

Pharmacyclics, the cancer-drug developer partnered with J&J, rallied 20 percent to $125.90. Its leukemia drug Imbruvica helped patients live longer without their cancer progressing compared with GlaxoSmithKline Plc’s Arzerra, also known as ofatumumab, Pharmacyclics and J&J said in statements today. Imbruvica also showed improvement in overall survival and had an acceptable safety profile, the companies said.

The Nasdaq Biotechnology Index added 1.4 percent, the biggest advance in two weeks. Health-care shares in the S&P 500 have risen 0.3 percent in 2014, the most among the 10 main industries.

Deals, Casinos

Convergys Corp. jumped 7.3 percent to $22.39. The information management firm said it will buy Stream Global Services Inc. for $820 million, adding 35 cents to its adjusted earnings-per-share in the first 12 months after the deal’s projected completion in the first quarter of this year.

MGM Resorts International, Wynn Resorts Ltd. and Las Vegas Sands Corp. advanced after Nomura analyst Harry Curtis increased his estimates for the companies’ Macau earnings and raised his price targets for all three stocks.

MGM rose 4.4 percent to $24.51 and Wynn Resorts gained 2.9 percent to $201.51. Las Vegas Sands added 2.2 percent to $78.98.

Netflix dropped 5.6 percent to $339.50. Morgan Stanley cut its rating on the stock to underweight, similar to a sell recommendation, from equal weight, citing increased competition in U.S. digital-video streaming. The stock almost quadrupled last year.

PBF Energy Inc. declined 4.7 percent to $28.50. The oil refiner said funds affiliated with First Reserve Management LP and Blackstone Group LP will sell 15 million shares in PBF, according to a statement.

Accelerating earnings growth will pave the way for stocks to extend their bull market this year, according to Thomas J. Lee, JPMorgan Chase & Co.’s chief U.S. equity strategist. After climbing 6 percent this quarter, S&P 500 profit will rise 10 percent in the second quarter, 11 percent in the third and 14 percent in the fourth, according to the New York-based strategist’s estimates.

--Editors: Lynn Thomasson, Jeff Sutherland