S&P 500 Nears Record on Corporate Earnings, Optimism in Economy

Feb 14, 2014 4:25 pm ET

Feb. 14 (Bloomberg) -- U.S. stocks rose, sending the Standard & Poor’s 500 Index to within 10 points of its all-time high, amid better-than-forecast earnings and continued confidence in the strength of the world’s largest economy.

Occidental Petroleum Corp. gained 3.8 percent after saying it will split its operations in California as one of the final steps of a breakup plan. Cliffs Natural Resources Inc. and Campbell Soup Co. added more than 5 percent as earnings beat forecasts. Men’s Wearhouse Inc. tumbled 5.3 percent after its acquisition target, Jos. A. Bank Clothiers Inc., proposed to buy the Eddie Bauer brand.

The S&P 500 rose 0.5 percent to 1,838.63 at 4 p.m. in New York, capping its largest weekly gain of the year. The Dow Jones Industrial Average added 126.80 points, or 0.8 percent, to 16,154.39. The Nasdaq Composite Index climbed 0.1 percent to the highest level since 2000. About 6 billion shares changed hands on U.S. exchanges, the lowest volume since Jan. 3.

“I think the market is still believing that the economy is moving in the right direction,” Robert Pavlik, chief market strategist at Banyan Partners LLC, which manages $4.5 billion, said in a phone interview. “Folks are looking to buy on the dips. The pullback is still fresh and they’re looking for opportunities.”

The S&P 500 has jumped 5.6 percent from a three-month low on Feb. 3 amid speculation economic growth is strong enough to withstand further cuts to Federal Reserve monetary stimulus. The index reached a closing high of 1,848.38 on Jan. 15, before dropping 5.8 percent on signs of slowing growth in China and a rout in emerging-market currencies. The Dow remains 2.5 percent below its record reached Dec. 31.

Fed Stimulus

Equities rallied for a second straight week, with the S&P 500 gaining 2.3 percent over the five days, as Fed Chair Janet Yellen said economic growth has strengthened and there is “broad improvement” in the labor market. She repeated the Fed’s outlook for further stimulus reductions in “measured steps,” adding that only a “notable change in the outlook” for the economy would prompt policy makers to slow the pace.

Federal Open Market Committee officials have twice reduced the size of the monthly asset-purchase program, lowering bond buying to $65 billion in February from $85 billion last year. Three rounds of stimulus under previous Chairman Ben S. Bernanke have helped push the S&P 500 as much as 173 percent higher from a 12-year low in 2009.

Data today showed U.S. industrial output unexpectedly declined in January by the most since May 2009, adding to evidence severe winter weather weighed on the economy. The 0.8 percent decrease at manufacturers followed a revised 0.3 percent gain the prior month that was weaker than initially reported, figures from the Fed showed. The median forecast in a Bloomberg survey of economists called for a 0.1 percent advance.

Consumer Confidence

Consumer confidence in the U.S. was stronger than projected in February as Americans grew more upbeat about the economy. The Thomson Reuters/University of Michigan preliminary index of U.S. consumer sentiment held at 81.2 this month. The median estimate in a Bloomberg survey of 74 economists called for a decline to 80.2.

“The weather is so horrible everywhere, much of the data could be very distorted,” Bruce Bittles, chief investment strategist at RW Baird & Co., said by telephone from Sarasota, Florida. His firm oversees $120 billion. “The Fed is going to wait until the weather clears and until we get some more numbers in March and April to consider the data. The picture will start to clear on how great or how poor the economy is.”

Equities have also climbed this week amid better-than- forecast corporate earnings. Seven S&P 500-listed companies reported earnings today. Seventy-five percent of the 400 companies that have posted results this season beat analysts’ estimates for profit and 64 percent exceeded sales projections, data compiled by Bloomberg show.

Earnings Season

Earnings at S&P 500 companies rose by 8.4 percent in the fourth quarter of 2013 and sales by 2.9 percent, according to analyst estimates compiled by Bloomberg.

The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options known as the VIX, fell 4 percent to 13.57. The gauge has fallen for seven straight days, the longest stretch since July, erasing its gain for the year.

Occidental Petroleum gained 3.8 percent to $95.76. The largest oil producer in the continental U.S. will split its operations in California into a separate publicly traded company. Occidental has embraced asset sales from North Dakota to the Persian Gulf to focus on its most profitable operations after lackluster returns in 2011 and 2012.

Cliffs Natural

Cliffs Natural rose 5.8 percent to $23.16. The U.S. iron miner being targeted by an activist shareholder reported earnings that beat analysts’ estimates. The board also appointed Gary Halverson, former president and chief operating officer, as chief executive officer.

Casablanca Capital LP, the company’s fourth-largest shareholder, has pressed Cliffs to spin off foreign assets and double its dividends. The shares have rallied 20 percent this month.

Campbell Soup climbed 5 percent to $43.01 as second-quarter adjusted earnings of 76 cents a share topped analysts’ forecasts for 73 cents as U.S. soup sales increased 5 percent. The company also reaffirmed it full-year estimates.

Marijuana stocks rallied today after the Treasury Department said it would allow banks to accept accounts from those businesses, letting an industry that is illegal in a majority of U.S. states open business checking accounts and accept credit cards.

Pot Stocks

Tranzbyte Corp., which sells pot in Colorado, jumped 29 percent to 3 cents. Tranzbyte was the most-traded stock among companies with a market value of at least $50 million, according to data compiled by Bloomberg. Growlife Inc. climbed 8.6 percent to 38 cents and Medical Marijuana Inc. rose 6.8 percent to 32 cents.

Men’s Warehouse tumbled 5.3 percent to $44.07. Jos. A. Bank, which has been resisting a merger with Men’s Wearhouse, said it will buy the Eddie Bauer brand for an enterprise value of $825 million. Jos. A. Bank added 0.4 percent to $55.12.

Weight Watchers sank 28 percent to $22.10, the lowest level since April 2009. Fourth-quarter adjusted earnings per share was 58 cents, missing the 61 cents estimated by analysts. Full-year earnings will be between $1.30 and $1.60 per share, the weight- control program provider said.

GNC, Agilent

GNC Holdings Inc. plunged 15 percent to $44.72. The company expects 2014 adjusted earnings to be between $3.18 and $3.24 per share, compared with an estimate by analysts of $3.46. Fourth- quarter earnings and sales also missed analysts’ targets.

Agilent Technologies Inc. fell 8 percent to $55.25. The company lowered its full-year forecast for adjusted earnings to between $2.96 and $3.16, from its earlier projection for $3.03 to $3.33.

VF Corp. slipped 5.1 percent to $56.85 after the apparel manufacturer reported fourth-quarter earnings per share that fell short of forecasts. VF has retreated 8.8 percent this year.

J.M. Smucker Co. dropped 3.5 percent to $91.81, the lowest level in almost a year. The peanut butter and jelly maker cut its earnings and sales forecasts for the current fiscal year after third-quarter results missed analysts’ estimates.

--With assistance from Trista Kelley in London. Editor: Jeff Sutherland