U.S. stocks fell, after the Standard & Poor’s 500 Index rose to a record yesterday, as employers added fewer workers than anticipated in July even as the jobless rate dropped to 7.4%.
Chevron Corp. slipped 2.4% after posting its biggest second-quarter profit decline in four years. American International Group Inc. rallied 1.9% after saying it will pay its first dividend since 2008 and authorizing a share buyback of as much as $1 billion. LinkedIn Corp. surged 11% after increasing its full-year sales forecast. Dell Inc. advanced 5.4% as Michael Dell agreed to sweeten his proposal to buy the computer maker with a special dividend.
The S&P 500 (CME:SPU13) lost 0.1% to 1,704.60 at 12:27 p.m. in New York, paring an earlier drop of as much as 0.4%. The benchmark index rallied 1.3% yesterday. The Dow Jones Industrial Average declined 22.59 points, or 0.1%, to 15,605.43 today. Trading in S&P 500 stocks was 5.8% below the 30-day average during this time of day.
“This number isn’t an earth-shaker,” John Manley, who helps oversee $222.7 billion as chief equity strategist for Wells Fargo Funds Management in New York, said in a phone interview. “It is debatable if it was good or bad. It was OK. The number still indicates the Fed is going to be there for a while, that is not bad.”
The 162,000 increase in payrolls last month was the smallest in four months and followed a revised 188,000 rise in June that was less than initially estimated, Labor Department figures showed today in Washington. The median forecast of 93 economists surveyed by Bloomberg called for a 185,000 gain. Workers spent fewer hours on the job and hourly earnings fell for the first time since October.
The unemployment rate was forecast to drop to 7.5% from 7.6%, according to the Bloomberg survey median.
Consumer spending rose in line with forecasts in June as Americans’ incomes grew, while orders placed with factories increased, pointing to further stabilization in manufacturing that may help lift second-half growth, separate reports showed.
The S&P 500 climbed above the 1,700 level yesterday for the first time as central banks vowed to maintain stimulus efforts and data on global manufacturing beat forecasts. The benchmark gauge is trading at 15.4 times projected earnings, compared with an average of 13.9 over the last five years, according to data compiled by Bloomberg.
About 83% of stocks in the index traded above their average prices from the past 50 days as of yesterday, according to data compiled by Bloomberg. While that’s below a 19-month high of 93% reached in May, it’s up from its 2013 bottom of 12.8% in June.
Some 115 S&P 500 stocks had their 14-day relative-strength index exceeding 70 yesterday, the most since May 21, Bloomberg data show. RSI measures the degree to which gains and losses outpace each other and some analysts who watch charts to predict market moves consider a reading over 70 as indicating the stock has risen too far too fast.
“What were we supposed to do for an encore after a day like yesterday?” said Donald Selkin, who helps manage about $3 billion of assets as the New York-based chief market strategist at National Securities Corp. “It had to let some air out.”
Three rounds of bond purchases by the Fed, coupled with improving earnings and economic growth, has helped propel the S&P 500 up more than 150% from its bear-market low in 2009. Speculation about the Fed’s monthly bond purchases has whipsawed stocks since May, when Chairman Ben S. Bernanke first indicated policy makers could begin reducing the stimulus this year if the job market continues to improve.
Fed officials said this week the labor market has shown “improvement,” while a report showed the U.S. economy grew more than projected in the second quarter. The central bank may begin tapering the pace of its asset purchases in September, according to a growing number of economists surveyed by Bloomberg from July 18 to July 22.
“The market will read today’s jobs report as part of the mixed data that’s shaping the Fed’s policy,” Stephen Wood, the New York-based chief market strategist who helps oversee about $237 billion at Russell Investments. “The pattern of economic growth looks more lumpy coming into this quarter. The market is going to turn its focus back to the earnings season and look at the revenue guidance with a microscope.”
Chevron and Berkshire Hathaway Inc. are among nine S&P 500 companies reporting results today. Of the 390 companies in the gauge to have already reported quarterly earnings, 74% have exceeded analysts’ profit estimates and 56% have beaten sales projections, data compiled by Bloomberg show.
The Chicago Board Options Exchange Volatility Index, or VIX, dropped 6% to 12.16 today. The equity volatility gauge reached its highest level this year in June and has since fallen 41%.
Six of the 10 main industry groups in the S&P 500 fell, with energy, utility and consumer-staples companies losing at least 0.3% to lead declines.
Chevron slipped 2.4% to $123.43 for the biggest retreat in the Dow. The world’s second-largest energy company by market value missed analysts’ estimates as crude oil prices and production fell.
Eaton Corp. dropped 5.4% to $66.17. The equipment maker reduced the high end of its forecast, saying it expects to earn no more than $4.25 a share this year. Analysts projected $4.33, on average.
AIG jumped 1.9% to $47.98. The insurer that repaid a government bailout last year announced a quarterly dividend of 10 cents a share. It also posted net income that climbed 17% to $2.73 billion in the second quarter.
LinkedIn surged 11% to $235.80. The operator of the biggest online professional-networking service said revenue jumped 59% to $363.7 million in the second quarter. That exceeded the average analyst estimate of $354.3 million.
Dell increased 5.4% to $13.65. Michael Dell and Silver Lake Management LLC agreed to increase their offer for the computer maker to $13.75 a share with a special dividend of 13 cents. Dell and Silver Lake had offered $13.65.
Sealed Air Corp. rose 8.8% to $30.32 for the largest advance in the S&P 500. The packing-material maker reported second-quarter adjusted profit of 35 cents a share, beating the average analyst estimate of 25 cents.
Viacom Inc. jumped 5.9% to $78.75. The owner of cable networks MTV and Nickelodeon doubled its stock-buyback program to $20 billion and posted higher-than-estimated sales.
Charter Communications Inc. climbed 3.4% to $132.30. The fourth-largest U.S. cable company by subscribers has held talks about combining with rival Cox Communications Inc., according to two people with knowledge of the matter.
Charter and its shareholder Liberty Media Corp. are still pursuing an acquisition of Time Warner Cable Inc., the people said. Time Warner Cable, which has been resistant to a combination with Charter, slipped 1.7% to $115.70.
Cablevision Systems Corp. climbed 4% to $19.39 even after the fifth-largest U.S. cable provider reported second- quarter sales that missed analysts’ estimates. The stock climbed 25% this year through yesterday, driven by speculation it may be an acquisition target.
Chief Executive Officer James Dolan said on the earnings call that “you never say never” to potential mergers and acquisitions.