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U.S. Stocks Decline as Halliburton, Verizon Drop

By Lu Wang and Nick Taborek
January 21, 2014 11:20 AM EST 24 Comments

U.S. stocks dropped for a third day as results from Johnson & Johnson and Verizon Communications Inc. disappointed investors.

J&J declined 2.3 percent after its earnings forecast trailed analysts’ estimates. Verizon slipped 2.9 percent as subscriber growth slowed from a record. Dow Chemical Co. rallied 4.9 percent after Daniel Loeb’s hedge fund Third Point LLC took a stake. Alcoa Inc. jumped 5.9 percent after JPMorgan Chase & Co. recommended buying the stock.

The Standard & Poor’s 500 Index lost 0.2 percent to 1,835.13 at 11:18 a.m. in New York, erasing an earlier advance of 0.6 percent. Equity trading resumed today after a holiday yesterday to mark the birthday of civil-rights leader Martin Luther King, Jr. The Dow Jones Industrial Average lost 115.64 points, or 0.7 percent, to 16,342.92.

“In the short term, continued earnings growth is particularly important,” James W. Gaul, a portfolio manager at Boston Advisors LLC, which oversees about $2.5 billion from Boston, said by phone. “We are no longer cheap, perhaps not even fairly valued at this point. Investor sentiment is quite optimistic. We need some positive news to get us going.”

Investors are the most upbeat about the global economy in almost five years, encouraged by the U.S.-led revival of industrialized nations, according to a Bloomberg Global Poll. Seventy-two percent in the survey of Bloomberg subscribers said the U.S. economy is improving, up from 53 percent a year ago.

Altman, Paulson

Jeff Altman and John Paulson, two of last year’s best-performing hedge-fund managers, are predicting that stocks will continue their rally in 2014 even as the bull market approaches its sixth year. They’re among a number of top money managers betting markets are robust enough to weather a gradual reduction in the pace of the Federal Reserve’s asset purchases as the central bank signaled it will keep interest rates at their current low for the foreseeable future, according to interviews with more than half a dozen investors.

“The wind will continue to be at the markets’ backs with the Fed,” said Altman, head of the $3.2 billion Owl Creek Asset Management LP. He’s betting on telecommunications and aerospace companies, the same industries that helped him gain 49 percent last year, putting him in the top 10 of Bloomberg’s annual hedge fund ranking.

The U.S. equities benchmark fell 0.2 percent last week, after touching an all-time high, as weaker-than-estimated earnings at companies from Citigroup Inc. to CSX Corp. offset an improving outlook for the global economy.

Earnings Season

A five-year rally that lifted the S&P 500 up more than 170 percent (SPX) from a bear-market low has boosted equity valuations to near the highest level since 2009. The S&P 500 trades at 15.6 times the estimated earnings of its members, more than the five-year average multiple of 14.1, data compiled by Bloomberg show.

Fourteen companies in the S&P 500 including Texas Instruments Inc. and Travelers Cos. report financial results today. Per-share profit for companies in the benchmark probably climbed 6 percent in the fourth quarter, while sales increased 2.2 percent, according to analysts surveyed by Bloomberg.

Of the 61 S&P 500 members that have reported results so far this season, 67 percent have beaten estimates for profit and 67 percent have exceeded sales projections, according to data compiled by Bloomberg.

To contact the reporters on this story: Lu Wang in New York at lwang8@bloomberg.net; Nick Taborek in New York at ntaborek@bloomberg.net

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

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