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U.S. Stocks Rise as Tech Shares Rebound Amid Earnings

By Lu Wang and Joseph Ciolli
April 15, 2014 5:20 PM EDT 93 Comments

U.S. stocks rose a second day, after equities posted the worst week since 2012, as earnings from Coca-Cola Co. and Johnson & Johnson overwhelmed concerns that tensions in Ukraine are worsening.

The Nasdaq Composite Index gained 0.3 percent, erasing an earlier drop of 1.9 percent after nearing its average price in the past 200 days. Coca-Cola gained 3.7 percent as global volume sales increased. Johnson & Johnson climbed 2.1 percent as the company raised its forecast for the year.

The Standard & Poor’s 500 Index climbed 0.7 percent 1,842.98 at 4 p.m. in New York, reversing a loss of 0.8 percent. The Dow Jones Industrial Average gained 89.32 points, or 0.6 percent, to 16,262.05. About 7.7 billion shares changed hands on U.S. exchanges, 10 percent above the three-month average.

“Stocks are having meaningful moves in both directions because people are nervous on both sides,” Michael James, a Los Angeles-based managing director of equity trading at Wedbush Securities Inc., said in a phone interview. “Subjectivity plays such a pivotal role, and emotions, in what’s been going on in this market that it’s hard to pinpoint what causes a turn in the direction.”

The S&P 500 yesterday briefly erased a 1 percent gain, as technology shares dipped, before closing higher to halt a two-day slide. The index has dropped 2.5 percent from its April 2 record as selling from Internet and biotechnology stocks, the best performers in a five-year rally, spread to the broader market.

Technology Volatility

The Nasdaq Composite today fell to within four points of its 200-day moving average of 3,942.50 before reversing. The last time the gauge dropped below that level, considered an important threshold by technical analysts, was Dec. 31, 2012. The index rose 88 points from its low today to the close, the biggest recovery since December, data compiled by Bloomberg show.

The Nasdaq, along with the S&P 500, Dow and Russell 2000 indexes, fell below 10-day through 100-day averages last week. The Russell index of smaller companies sank through its 200-day average today before reversing to close about 12 points above that level.

The volatility in technology stocks “adds to investor uneasiness,” Brian Peery, who helps oversee $4.8 billion for Novato, California-based Hennessy Funds, said in a phone interview. Peery said his firm has taken advantage of the recent selloff to add holdings in industrial companies, such as airlines. “The market is going to continue to climb the proverbial wall of worry. There is enough good economic news to support the market moving up higher in slower stages.”

Data Watch

Economic data today showed manufacturing in the New York region grew at a slower pace in April while the cost of living in the U.S. rose more than projected in March as food and rents became more expensive.

Confidence among U.S. homebuilders rose less than forecast in April, as sales and prospective buyer traffic stagnated, showing the residential real estate market struggled to improve after a harsh winter. An S&P index of homebuilders fell 0.6 percent.

“The discipline is to take long-term views of data and move away from the wiggles of each daily number,” Stephen Wood, the New York-based chief market strategist at Russell Investments, which oversees more than $259 billion, said by phone. “The grinding, if reluctant, U.S. economy is still in place and all of this data, in the long-term perspective, confirms that.”

Investors are also weighing data from China, where a report earlier today indicated the money supply grew less than forecast in March. The government will report tomorrow gross domestic product data for the first quarter in the world’s second-largest economy.

China GDP

“China’s growth data tomorrow may demonstrate a weaker-than-expected economy,” Ronald Wan, chief China adviser at Asian Capital Holdings Ltd., said by phone from Hong Kong. “Expectations for large-scale stimulus may not be in place and there could be smaller measures instead.”

Ukraine unleashed an offensive to dislodge militants from towns in its eastern Donetsk region as the authorities in Kiev said elements of Russian special forces were identified among the anti-government forces. Russia’s prime minister said the country risks civil war.

“There’s a tremendous amount of volatility and uncertainty because of concerns over Russia and Ukraine,” Chad Morganlander, a Florham Park, New Jersey-based portfolio manager for Stifel Nicolaus & Co., which oversees more than $150 billion, said in a phone interview. “That’s going to shift the winds of the market on a minute-by-minute basis. You’re in the process right now, in the short run, of sorting through earnings, as well as geopolitical and economic issues.”

Earnings Estimates

Nine S&P 500 members report earnings today. Profit at S&P 500 companies probably fell 0.9 percent in the first quarter, analysts predict. At the beginning of the year, they had projected a 6.6 percent increase. Sales increased 2.6 percent in the first quarter, the estimates show.

Yahoo! Inc. and Intel Corp. advanced in extended trading after reporting results. Yahoo jumped 6.4 percent to $36.39 at 5:17 p.m. in New York as sales surpassed forecasts. The stock also got a boost when Alibaba Group reported a 66 percent jump in revenue. Yahoo owns about 24 percent of the largest Chinese e-commerce company. Intel climbed 2 percent to $27.30 after earnings topped analyst estimates.

The S&P 500 trades at 17 times its members’ reported earnings. While that’s near its highest valuation in four years, it’s close to its weekly average since 1937, data compiled by Bloomberg show.

Volatility Gauge

The Chicago Board Options Exchange Volatility Index, a gauge for U.S. stock volatility known as the VIX, fell 3.1 percent to 15.61.

All of the 10 main S&P 500 groups advanced today, with utility and energy stocks rising 1.3 percent to lead the gains.

Coca-Cola rose 3.7 percent to $40.18 as first-quarter profit met analysts’ estimates. Global sales volume rose 2 percent for the quarter, driven by emerging markets.

Chief Executive Officer Muhtar Kent, facing sluggish soft drink sales in the U.S., has implemented a cost-cutting program to boost earnings and is collaborating with Keurig Green Mountain Inc. to compete in at-home soda making.

Johnson & Johnson rose 2.1 percent to $99.20, an all-time high. The world’s biggest maker of health-care products said first-quarter profit rose 34 percent on demand for the company’s newest drugs.

J&J, the first of the major health care companies to report earnings this quarter, raised its 2014 forecast to $5.80 to $5.90 a share from $5.75 to $5.85 a share, excluding items.

Twitter Inc. soared 11 percent, the biggest gain since its first day of trading, to $45.52. The microblogging company is buying data-analysis company and longtime partner Gnip Inc. for an undisclosed amount. The deal gives Twitter a bigger share of profits from reselling analytical data. The stock is still 28 percent lower for the year.

To contact the reporters on this story: Lu Wang in New York at lwang8@bloomberg.net; Joseph Ciolli in New York at jciolli@bloomberg.net

To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net Jeremy Herron, Jeff Sutherland

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