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U.S. Stocks Little Changed on Payrolls After Index Highs

By Lu Wang
July 02, 2014 4:37 PM EDT 35 Comments

U.S. stocks were little changed, after benchmark gauges closed at record levels yesterday, as private data showed companies added more workers than estimated in June before the government’s jobs report tomorrow.

Constellation (STZ) Brands Inc. rallied 2.3 percent after boosting its earnings forecast. Rackspace Hosting Inc. jumped 6.3 percent after TechCrunch reported the company may go private. Bank of America Corp. advanced 1.6 percent as Deutsche Bank AG advised investors to buy the stock. Airlines posted the biggest loss among S&P 500 industries after Delta Air Lines Inc. said excess capacity in some international markets forced fares down more than expected.

The Standard & Poor’s 500 Index (SPX) rose less than 0.1 percent to 1,974.62 at 4 p.m. in New York. The Dow Jones Industrial Average added 20.17 points, or 0.1 percent, to 16,976.24. Both gauges extended closing records. The Russell 2000 Index of smaller companies lost 0.5 percent today after rallying 0.8 percent yesterday. U.S. equity markets close at 1 p.m. tomorrow ahead of the Independence Day holiday.

“The ADP data is very strong,” Jim McDonald, chief investment strategist at Chicago-based Northern Trust Corp., said by phone. His firm manages about $915 billion of assets. “It’s another sign that we’re regaining some momentum in the latter part of the year. People are probably not going to want to have big bets on ahead of the payroll number.”

The S&P 500 moved in a range of 0.21 percentage point today from its highest and lowest points, the second-smallest fluctuation since 1993 after a 0.20 point reading in December, data compiled by Bloomberg show. About 5.2 billion shares changed hands on U.S. exchanges, 13 percent below the three-month average.

Index Records

Benchmark indexes reached records yesterday, with the 30-member Dow rising within two points of 17,000. The Dow Jones Transportation Average (TRAN) also jumped to an all-time high, while the Russell 2000 briefly touched a record. Simultaneous gains in different industries are sometimes cited by chart analysts as evidence economic growth is pervasive enough to fuel additional gains.

Stocks are extending a rebound from the selloff earlier this year that started with biotechnology and small-cap stocks. Equities have rallied since the S&P 500 reached a two-month low in April as central bank stimulus spread from Europe to Japan and the U.S.

Companies in the U.S. added 281,000 workers to their payrolls in June, figures from the ADP Research Institute showed today. The median projection of 47 economists surveyed by Bloomberg called for an advance of 205,000.

Jobs Report

The private report precedes the Labor Department’s payrolls data tomorrow that may show nonfarm payrolls rose by 215,000 in June, according to the median of 89 economists’ estimates. A separate release showed today that U.S. factory orders fell 0.5 percent in May.

Data from employment to housing is fueling confidence that the world’s largest economy is rebounding after the worst contraction in gross domestic product since 2009.

“Everything that we’re seeing in the second quarter has generally been improving and in most cases accelerated improvement,” Chris Bouffard, chief investment officer at the Mutual Fund Store in Overland Park, Kansas, said by phone. His firm oversees $9 billion. “The market’s looking to say the outlook for the next few quarters is more positive than we saw certainly in the first quarter.”

Economic Growth

Fed Chair Janet Yellen said last month that accommodative monetary policy, rising property and equity prices and the improving global economy should lead to above-trend growth. She emphasized the need to put more Americans back to work and downplayed concerns about asset-price bubbles and incipient inflation.

Yellen said in a speech today that interest rates shouldn’t be the main tool to promote financial stability.

“Monetary policy faces significant limitations,” she said in prepared remarks at the International Monetary Fund in Washington. “Its effects on financial vulnerabilities, such as excessive leverage and maturity transformation, are not well understood and are less direct than a regulatory or supervisory approach.”

The comments are significant because economists worry that central banks may now be causing a worldwide reach for yield as interest rates are suppressed by monetary policy. The Fed itself has kept the benchmark lending rate near zero since December 2008.

ECB Rates

The European Central Bank will probably keep interest rates unchanged at its meeting tomorrow after cutting its benchmark rate to a record low last month, according to the median forecast of economists in a Bloomberg survey.

The Chicago Board Options Exchange Volatility Index (VIX) declined 3 percent to 10.82. The gauge, known as the VIX, is near its lowest level since February 2007.

Six out of the 10 S&P 500 main industries gained as health-care, phone and consumer-staples companies rose the most, adding at least 0.2 percent. Utilities fell 2 percent for the worst performance.

Constellation rose 2.3 percent to $90.45. The producer and marketer of wines, beers and spirits increased its earnings estimates for the fiscal year after posting better-than-estimated profit in its first quarter.

Rackspace rallied 6.3 percent to $35.88. The provider of cloud-computing services has been negotiating with a private-equity firm to borrow capital for a deal to go private, TechCrunch reported, citing an unidentified source. The deal could be announced as soon a this week, according to the news website. Rackspace hired Morgan Stanley last month to seek strategic options.

Airlines Slump

Bank of America advanced 1.6 percent to $15.85. Deutsche Bank upgraded its recommendation for the second-biggest U.S. lender to buy from hold.

Airlines slumped 3.6 percent, the most among 156 groups in the S&P 500. Delta lost 5.1 percent to $38.24 as its passenger unit revenue increased 4.5 percent last month from a year earlier, slowing from a growth rate of 7 percent in May. Strong domestic travel “offset lower-than-expected international yields driven by industry-wide capacity increases,” Delta said.

GoPro Inc. (GPRO) lost 14 percent to $42.04, the first drop since its initial public offering last week. The maker of wearable cameras surged 20 percent to $48.80 yesterday, doubling its IPO price in a week. The company’s market value climbed to $6 billion, compared with $2.96 billion in its IPO.

Harley-Davidson Inc. retreated 3.6 percent to $67.80 after Raymond James Financial Inc. lowered its recommendation on the Milwaukee-based motorcycle maker to market perform, the equivalent of hold, from strong buy.

To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net

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

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