“The markets have been priced for everything to go perfect,” Ron Florance, the Scottsdale, Arizona-based deputy chief investment officer for Wells Fargo Private Bank, which oversees $170 billion, said by phone. “This number shows us that it’s not going to be perfect. We’re still on the trajectory of recovery, but I would expect heightened volatility.”
The S&P 500 trades at 15.6 times estimated earnings of its members, more than the average multiple of 14.1 over the last five years, data compiled by Bloomberg show. Earnings for companies in the S&P 500 will climb 9.5% on average this year, almost twice the rate of 2013, while sales will probably increase 3.9%, according to analyst estimates compiled by Bloomberg.
“Earnings expectations are quite ambitious this year so we have to see if these come through,” said Virginie Robert, co- founder and partner at Constance Associes in Paris. Her firm, founded in August 2013, oversees three mutual funds including one that tracks the S&P 500 Total Return Index. “The fourth quarter will probably be quite disparate. You can see that retailers who have done well with online sales are reporting better holiday results, but others probably had a terrible quarter.”
JPMorgan Chase & Co., Bank of America Corp. and Goldman Sachs Group Inc. will all report quarterly results next week.
The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options known as the VIX, lost 5.8% to 12.14 today. The index has fallen 12% this month and closed at the lowest level since August.
Nine out of 10 main industries in the S&P 500 advanced. Utility and phone companies, which have the highest dividend payouts among 10 S&P 500 groups, were among the best performers.
Homebuilders increased 1.3% amid optimism a drop in borrowing costs will buoy demand in the housing market. D.R. Horton Inc. advanced 1.8% to $22.15 and Lennar Corp. climbed 2% to $39.19.
Abercrombie & Fitch Co. jumped 12% to $37.19. The teen-clothing retailer increased its full-year earnings prediction. Gap Inc., which rallied 26% in 2013, added 1.1% to $39.84 after the retailer said annual profit may reach the upper end of its forecast.