Bull market shows no sign of death with support from Yellen

Cutting Workforce

Northrop Grumman Corp., the fifth-biggest U.S. government contractor, raised its profit outlook in October for 2013 after boosting net income by cutting jobs. The Falls Church, Virginia- based company’s workforce fell to 68,100 last year from 123,600 in 2008, data compiled by Bloomberg show. The profit margin was 7.8% in 2012, compared with 5% in 2009.

Shares of Burbank, California-based Disney, the world’s largest entertainment company, and Northrop have climbed more than threefold since March 2009. ConocoPhillips, based in Houston, is up 161% since then.

Rising margins helped S&P 500 earnings double since October 2009 even as sales growth slowed. Per-share revenue for the index rose an average 1.9% a quarter since the start of 2009, compared with 4.6% for the 18 years before that, according to data compiled by Bloomberg. Analysts say profits will increase another 10% in 2014, this time as sales grow faster. Revenue will expand 4.1% next year, twice the rate of 2013, Bloomberg data show.

Profit Support

The S&P 500’s advance since March 2009 has surpassed the gains in the last bull market, which ended in October 2007. The index climbed 0.1% to 1,805.81 last week, ending 15% above the record before this year. U.S. exchanges were closed on Nov. 28 and had a shorter session on Nov. 29 due to Thanksgiving.

Stocks are up 27% in 2013, poised for the best annual gain in 15 years, as the Federal Reserve refrained from scaling back its third round of quantitative easing to stimulate the economy and corporate profits expanded as chief executives cut costs. The S&P 500 climbed 2.8% in November, a third straight monthly gain.

The index rose less than 0.1% to 1,806.50 at 11:21 a.m. New York time today.

Unemployment is “still too high, reflecting a labor market and economy performing far short of their potential,” Yellen told the Senate Banking Committee during her confirmation hearing on Nov. 14. More than half the gauges she uses to track the labor market are below pre-recession levels. The U.S. unemployment rate was 7.3% in October, compared with the 5.8% average since the 1940s, Bloomberg data show.

Economic Morale

Weak employment will harm stocks in the long run, even with the Fed’s support, according to John Carey, a fund manager at Pioneer Investment Management who oversees about $200 billion.

“An intangible is the effect on everyone’s morale of seeing the continuing reporting on the difficult jobs situation,” he said Nov. 29. “It cannot be helpful for consumer confidence and business confidence to read day after day that the economy just will not get going.”

The Fed said after its October meeting that it will press on with its $85 billion in monthly asset purchases and continue to hold short-term rates near zero at least as long as unemployment is above 6.5% and forecast inflation is below 2.5%. Economists in a Bloomberg survey expect the central bank won’t begin reducing its monthly bond purchases until March.

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