U.S. stocks rose, after the biggest weekly drop of the year for the Standard & Poor’s 500 Index, as investors awaited Alcoa Inc.’s financial release to mark the beginning of the earnings season.
Alcoa, the largest U.S. aluminum producer, added 1%. Advanced Micro Devices Inc. rose the most in the S&P 500 after Microsoft Corp. was said to use AMD chips in its next Xbox game console. BioCryst Pharmaceuticals Inc. surged 15% as China expedited the approval of its anti-influenza drug Peramivir. Lufkin Industries Inc. jumped 37% as General Electric Co. agreed to buy the maker of oil-well pumps.
The S&P 500 rose 0.4% to 1,558.85 at 3:15 p.m. in New York, after falling as much as 0.3% earlier. The Dow Jones Industrial Average added 11.41 points, or 0.1%, to 14,576.66 Trading in the S&P 500 was 16% below the 30-day average during this time of day.
Today’s reversal “continued a pattern, which has shown for quite some time now, which is any weakness is met with buying at some point of the day,” James Gaul, a portfolio manager at Boston Advisors LLC, which oversees about $2.5 billion in assets, said in a telephone interview. “There are people who are afraid of missing out on further rallies.”
The S&P 500 fell 1% last week as U.S. payrolls had the smallest gain in nine months in March while other reports showed manufacturing and services industries expanded less than forecast. The index climbed to an all-time high of 1,570.25 on April 2. The benchmark has more than doubled from its 12-year low in March 2009, helped by the Federal Reserve’s unprecedented bond purchases and three straight years of profit growth.
Earnings Season
JPMorgan Chase & Co., Wells Fargo & Co. and Bed Bath & Beyond Inc. are among nine S&P 500 companies scheduled to report earnings this week. Analysts project profits at S&P 500 companies fell 1.8% in the latest quarter, the first year-over-year drop since 2009, estimates compiled by Bloomberg show. Analysts had predicted a 1.2% increase when surveyed in January.
Chief executive officers “have given lower and lower expectations, that anybody who doesn’t meet expectations in this quarter is going to be punished severely,” Joe Kinahan, chief derivatives strategist at Omaha, Nebraska-based TD Ameritrade Holding Corp., said by telephone. His firm has $499.3 billion in client assets. “While those that beat won’t necessarily be rewarded, it’ll keep their stocks from being annihilated.”
Group Returns
Eight of the 10 S&P 500 industry groups rose today as consumer stocks gained the most, adding at least 0.8%. Phone stocks retreated 0.8%.
Alcoa, the first Dow member to publish results each quarter, added 1% to $8.32. The company will report an 8- cent a share profit after the close of regular trading, according to the average of 18 analysts’ estimates. That would be two cents less than the earnings it posted in the year- earlier quarter.
AMD surged 11%, the most since Jan. 23, to $2.55. Microsoft will use an AMD processor in its next Xbox game console as it seeks to cut the cost of building machines and get developers to create more titles, people with knowledge of the matter said.
The shift means Microsoft will drop the Power PC technology designed by International Business Machines Corp., and game discs made for the current Xbox 360 won’t be compatible. IBM slid 0.4% to $208.66 and Microsoft declined 0.6% to $28.53.
H7N9 Virus
BioCryst surged 15% to $1.96, adding to a 29% gain on April 5. China’s Food and Drug Administration said it expedited the approval of Peramivir as authorities reported three more infections of the deadly H7N9 virus that has killed six people in the country since March.
Lufkin soared 37% to $87.90, the highest since July 2011. GE, the world’s biggest provider of power-generation equipment and services, said it will acquire Lufkin for about $3.3 billion, or $88.50 a share. GE rose 0.5% to $23.05.
Johnson & Johnson fell 1.4% to $80.89. The world’s largest seller of health-care products may cut its earnings forecast for 2013 because of a devaluation of the Venezuelan bolivar, JPMorgan said in a note. The firm reduced the stock’s rating to neutral from overweight.
CA Inc., a maker of software for managing information technology, slipped 1.6% to $24.20. Abhey Lamba, an analyst with Mizuho Securities USA Inc., cut the stock’s rating to neutral from buy.
Netflix Streak
Netflix Inc. fell 1.9% to $161.52, extending its decline to eight consecutive days. The stock has lost 15% during the losing streak, its longest such stretch since October 2008. Competition among pay-TV vendors is increasing as Intel Corp. plans to start an online service this year while Time Warner Inc.’s Warner Bros. has recently introduced its own subscription streaming service.
Wagers that U.S. stock volatility will increase have reached a three-year high on concern American companies are getting ready to report the first slump in profit since 2009.
There were 6.54 million calls on the Chicago Board Options Exchange Volatility Index and 2.34 million puts on April 4, according to data compiled by Bloomberg. The ratio jumped to 2.93-to-1 last month, the highest since March 2010. The VIX, tracking S&P 500 option prices, has climbed 22% from its six-year low in March and lost 2.6% to 13.56 today.
‘Higher Volatility’
“The weaker data and earnings would encourage higher volatility after an unchallenged rally throughout the first quarter,” Andrew Greeley, a senior managing director at Stamford, Connecticut-based Acorn Derivatives Management Corp., which manages more than $450 million in volatility assets, said on April 5.
Even bulls are taking steps to protect profits after gains in U.S. stocks added $10 trillion to equity values.
Russ Koesterich of BlackRock Inc. and Valentijn Van Nieuwenhuijzen at ING Investment Management, who bought equities in 2012, say risks are rising during a period in which stocks have lost an average 5.2% since 2010, data compiled by Bloomberg show. Concern the U.S. economy isn’t expanding fast enough prompted Koesterich to sell smaller companies. Van Nieuwenhuijzen is holding off on new share purchases.
Defensive Industries
Investors managing more than $5 trillion say they’re looking for ways to limit losses after the S&P 500 reached a record. That got harder in the first quarter, when rallies in drugmakers and utilities pushed valuations for so-called defensive industries to the highest since 2008.
“You have an increased risk of a correction now,” Koesterich, the chief investment strategist at New York-based BlackRock, the world’s largest money manager with $3.8 trillion in assets, said in an April 4 phone interview. “The parts of the market that have done the best, the defensives, have gotten very expensive,” he said. “This is a very different rally than what people are used to.”
