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S&P 500 flirts with 1,900, but falls short
May 14, 2014, 05:00 AM By Steve Rothwell The Associated

NEW YORK — The Standard & Poor’s 500 index is flirting with a new milestone: 1,900.

The index briefly climbed above that level on Tuesday before dropping back to close just below it. Still, it set an all-time closing high by a fraction of point.

Stocks have gained as most investors remain optimistic that the economy will start to accelerate this year following a cold winter that stymied growth. First-quarter corporate earnings came in better than expected, giving stocks a lift.

Whether the S&P 500 climbs beyond the 1,900 level or falls back now depends on the how the economy develops, said John Canally, chief market strategist for LPL Financial. If growth falters, stocks will likely slide, he said.

“But if the economy can deliver ... and the global economy can accelerate, we’ll look back at 1,900 and say ‘Yes that was just a stop on the way to 2,000,’” he said.

On Tuesday, the Standard & Poor’s 500 index rose 0.8 points, or less than 0.1 percent, to 1,897.45, after climbing as high as 1,902 in early trading. The index first closed above 1,800 on Nov. 22.

The Dow Jones industrial average rose 19.97 points, or 0.1 percent, to 16,715.44. The Nasdaq composite was the laggard of the three. The technology-focused index fell 13.7 points, or 0.3 percent, to 4,130.17.

Keurig Green Mountain was the biggest gainer in the S&P 500 index. Its stock surged $8.36, or 7.6 percent, to $119.07 after Coca-Cola raised its stake in the coffee company. Coca-Cola, the world’s biggest beverage company, disclosed in a regulatory filing that a subsidiary now has a 16 percent stake in Keurig.

Investors were also assessing corporate earnings.

McKesson jumped $5.77, or 3.3 percent, to $180 after the prescription drug distributor said Monday its net income rose 43 percent in its fiscal fourth quarter. Its overall earnings got a boost from stronger results in North America and lower costs.

Beauty products company Elizabeth Arden plunged $8.13, or 23 percent, to $27.50 after it reported an unexpected quarterly loss and disclosed it has hired Goldman Sachs to help it explore strategic alternatives.

Overall, though, first-quarter earnings have come in better than analysts expected.

Nearly all companies in the S&P 500 have reported results, and earnings are forecast to grow by 3.3 percent when final figures are calculated, according to S&P Capital IQ data. Three weeks ago, analysts were expecting earnings to fall 1.1 percent.

Another encouraging sign was that company revenue growth accelerated in the quarter to 3.2 percent, from 1.6 percent in the fourth quarter.

Despite the positive backdrop, the stock market’s move higher this year has been more of a grind compared with last year’s surge. Along with worries about the U.S., there are concerns about growth overseas, as well as tensions with Russia after that country annexed the Crimea region in Ukraine.

Another factor is that stocks, having rallied for more than five years, are also no longer the bargain they once were.

“In 2009 the market was cheap. Now we’re fairly valued, maybe a bit overvalued,” said Canally of LPL Financial.

The price-earnings ratio, a measure of how expensive stocks are compared with next year’s expected earnings, is 15.2 for companies in the S&P 500. That is below their average of 16.4 over the last twenty years, according to FactSet data, but above the 11.4 at the start of 2009.

In government bond trading, prices rose. The yield on the 10-year Treasury note dropped to 2.61 percent, from 2.66 percent late Monday.

The 1,900 level for the S&P 500 will likely prove a psychological hurdle for investors, as investors reassess the stock market and the economy, said Sean McCarthy, regional chief investment officer for Wells Fargo private bank. More good news on the economy should push stocks higher.

“The pause we are seeing today, is really just that, a pause, with the market coming to grips with where we are,” McCarthy said.

Stocks that moved substantially or traded heavily Tuesday on the New York Stock Exchange and the Nasdaq Stock Market:

NYSE

Rackspace Hosting, Inc., up $2.35 to $29.88

The cloud computing company rebounded from what has been a rough year with a very strong first-quarter performance and outlook.

Encana Corp., up 42 cents to $22.98

Higher gas prices and rising volumes pushed the Canadian energy company past Wall Street expectations during the first quarter.

Nabors Industries Ltd., down 1 cent to $25.76

Bernstein Research downgraded the oilfield services company, believing that optimism for the sector has peaked as risks increase.

J.C. Penney Company Inc., down 9 cents to $9.09

Sterne Agee is cautiously optimistic that the retailer will top expectations when it posts quarterly earnings numbers on Thursday.

Nasdaq

DirecTV, up $1.08 to $86.08

Some industry analysts say that not only is it likely that AT&T will buy the satellite television company, but that it’s also a great idea.

Keurig Green Mountain Inc., up $8.36 to $119.07

Coca-Cola raised its stake in the beverage dispenser company to 16 percent, seeking to get its familiar brands into more homes.

Halozyme Therapeutics Inc., up 52 to $8.04

The drug developer said it’s closer to reinitiating the study of a pancreatic cancer treatment that was halted by regulators.

Elizabeth Arden Inc., down $8.13 to $27.50

The cosmetics maker reported a surprising quarterly loss and said it is exploring ways of creating shareholder value.

 

 

Tags: percent, company, earnings, stocks, quarter, economy,


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