U.S. stocks were little changed as investors assessed prospects for economic and corporate earnings growth after the Standard & Poor’s 500 Index (CME:SPH14) rallied the most last year in more than a decade.
Lululemon Athletica Inc. slumped 17% after the sportswear maker lowered its profit and sales forecast. Symantec Corp. lost 2.5% as Morgan Stanley recommended investors sell the shares. Beam Inc. jumped 24% after Suntory Holdings Ltd. said it will acquire the spirits maker in a $16 billion deal. Juniper Networks Inc. rallied 9% after the maker of computer-networking equipment was said to be targeted by activist hedge fund Elliott Management Corp.
The S&P 500 added less than 0.1% to 1,842.71 at 10:09 a.m. in New York. The Dow Jones Industrial Average rose 6.93 points, or less than 0.1%, to 16,443.98 today.
“Sentiment is extremely optimistic and that’s a negative for stocks,” Bruce Bittles, chief investment strategist at RW Baird & Co., said by phone from Sarasota, Florida. His firm oversees $105 billion. “That means for the short term they’re fully invested. Stocks have entered the new year overbought and over-believed and until we digest that, we’re likely to stay in this range.”
The S&P 500 has dropped 0.35 so far in 2014, despite last week’s 0.6% advance. It ended last year at a record level, having climbed 30% for its biggest annual rally since 1997.
JPMorgan Chase & Co., Bank of America Corp., Goldman Sachs Group Inc., and Citigroup Inc. are among 29 members of the S&P 500 to report quarterly results this week. Earnings for companies in the index probably climbed 4.9% on average in the fourth quarter, while sales increased 1.8%, according to analyst estimates compiled by Bloomberg.
The S&P 500 trades at 15.6 times the estimated earnings of its members, more than the average multiple of 14.1 over the last five years, data compiled by Bloomberg show. The gauge ended 2013 at its highest valuation since the end of 2009.
“The way to think about the market is the level of earnings and the multiple which should be applied to that earnings growth,” David Kostin, chief U.S. equity strategist at Goldman Sachs Group Inc., told Manus Cranny on Bloomberg Television. “Those really are the fundamental drivers of the level of U.S. equity markets this year. Earnings growth is likely to be the principal source of return for U.S. investors because, historically speaking, the market is trading at a pretty elevated level.”
The equity benchmark will remain within a range of five% below or above the 1,800 level as investors assess how economic growth and earnings interact with increasing Treasury yields, according to Deutsche Bank AG’s David Bianco. The New- York based chief U.S. equity strategist forecasts that the S&P 500 will end this year little changed at 1,850.