U.S. Stocks Fall as Investors Assess Earnings, Valuations

January 13, 2014

New Yorkl (Jan 13)  U.S. stocks fell as investors assessed prospects for economic and earnings growth after the Standard & Poor’s 500 Index rallied in 2013, pushing valuations to the highest in four years.

The S&P 500 (SPX) fell 0.3 percent to 1,836.33 at 12:27 p.m. in New York. The Dow Jones Industrial Average declined 52.37 points, or 0.3 percent, to 16,384.68 today. Trading in S&P 500 stocks was 8.6 percent above the 30-day average at this time of day.

“I think the big anticipation right now is earnings and the outlook for the accompanying earnings for the year,” Gene Peroni, portfolio manager at Advisors Asset Management Inc. in Conshohocken, Pennsylvania, said in a phone interview. His firm manages about $13.2 billion in assets. “The market finished very strongly last month and it was a great year. The quiet we’re seeing here is an orderly correction, with some rotational movement in the market.”

The S&P 500 has dropped 0.5 percent so far in 2014, despite last week’s 0.6 percent advance. It ended last year at a record level, having climbed 30 percent for its biggest annual rally since 1997.

‘Lofty’ Valuations

Valuation for the S&P 500 is “lofty by almost any measure,” Goldman Sachs Group Inc. analysts wrote in a note Jan. 10. Further price-to-earnings expansion will be difficult to achieve, according to the note.

The benchmark 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 gauge ended 2013 at its highest valuation since the end of 2009.

“The way to think about the market is the level of earnings and the multiple which should be applied to that earnings growth,” David Kostin, chief U.S. equity strategist at Goldman Sachs, said today on Bloomberg Television. “Those really are the fundamental drivers of the level of U.S. equity markets this year.”

JPMorgan Chase & Co., Bank of America Corp., Goldman Sachs, and Citigroup Inc. are among 29 members of the S&P 500 to report quarterly results 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.

S&P Range

The equity benchmark will remain within a range of five percent below or above the 1,800 level as investors assess how economic growth and earnings interact with increasing Treasury yields, according to Deutsche Bank AG’s David Bianco. The New-York based chief U.S. equity strategist forecasts that the S&P 500 will end this year little changed at 1,850.

Three rounds of monetary stimulus from the Federal Reserve 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.

The S&P 500 increased on Jan. 10 after a report from the Labor Department showed employment rose in December at the slowest pace in almost three years, easing concern the Fed will accelerate the pace of stimulus cuts. The data ended months of improving job growth that had signaled the world’s largest economy was picking up.

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