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Portfolio > Alternative Investments > Private Equity

U.S. stocks fluctuate on ADP payrolls data after index records

By Lu Wang

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(Bloomberg) – U.S. stocks fluctuated, after benchmark gauges closed at record levels yesterday, as private data showed companies added more workers than estimated in June before the government’s jobs report tomorrow.

Constellation Brands Inc. rallied 2.9 percent after boosting its earnings forecast. Rackspace Hosting Inc. jumped 7.4 percent after TechCrunch reported the company may go private. Bank of America Corp. advanced 2.4 percent as Deutsche Bank AG advised investors to buy the stock. Airlines posted the biggest loss among S&P 500 industries after Delta Air Lines Inc.’s traffic growth slowed in June.

The Standard & Poor’s 500 Index rose 0.1 percent to 1,975.20 at 11:37 a.m. in New York. The Dow Jones Industrial Average added 8.70 points, or less than 0.1 percent, to 16,964.77. Trading in S&P 500 stocks was 5 percent higher than the 30-day average during this time of the day.

“The ADP data is very strong,” Jim McDonald, chief investment strategist at Chicago-based Northern Trust Corp., said by phone. His firm manages about $915 billion of assets. “It’s another sign that we’re regaining some momentum in the latter part of the year. People are probably not going to want to have big bets on ahead of the payroll number.”

The S&P 500 and Dow reached records yesterday, with the 30- member Dow rising within two points of 17,000. The Dow Jones Transportation Average also jumped to an all-time high, while the Russell 2000 Index of smaller companies briefly touched a record. Simultaneous gains in different industries are sometimes cited by chart analysts as evidence economic growth is pervasive enough to fuel additional gains.

Growth Optimism

Stocks are extending a rebound from the selloff that started with biotechnology and small-cap stocks about three months ago. Equities have rallied since the S&P 500 reached a two-month low in April as central bank stimulus spread from Europe to Japan and the U.S.

Data from employment to housing is fueling confidence that the U.S. economy is rebounding after the worst contraction in gross domestic product since 2009.

“Everything that we’re seeing in the second quarter has generally been improving and in most cases accelerated improvement,” Chris Bouffard, chief investment officer at the Mutual Fund Store in Overland Park, Kansas, said by phone. His firm oversees $9 billion. “The market’s looking to say the outlook for the next few quarters is more positive than we saw certainly in the first quarter.” Employment Reports

Companies in the U.S. added 281,000 workers to their payrolls in June, figures from the ADP Research Institute in Roseland, New Jersey, showed today. The median projection of 47 economists surveyed by Bloomberg called for an advance of 205,000.

The private report precedes the Labor Department’s payrolls data tomorrow. Nonfarm payrolls may rise by 215,000 in June, which would mark a fifth straight month of increases topping 200,000, according to the median of 89 economists’ estimates. That also would be the longest streak of monthly gains since September 1999-January 2000.

A separate release showed factory orders in the world’s biggest economy fell 0.5 percent in May. Economists forecast a decline of 0.3 percent, according to a Bloomberg survey.

Yellen Speech

Fed Chair Janet Yellen said today that interest rates shouldn’t be the main tool to promote financial stability.

“Monetary policy faces significant limitations,” she said in prepared remarks at the International Monetary Fund in Washington. “Its effects on financial vulnerabilities, such as excessive leverage and maturity transformation, are not well understood and are less direct than a regulatory or supervisory approach.”

The comments are significant because economists worry that central banks may now be causing a worldwide reach for yield as interest rates are suppressed by monetary policy. The Fed itself has kept the benchmark lending rate near zero since December 2008.

Yellen said last month that accommodative monetary policy, rising property and equity prices and the improving global economy should lead to above-trend growth. She emphasized the need to put more Americans back to work and downplayed concerns about asset-price bubbles and incipient inflation.

The Chicago Board Options Exchange Volatility Index declined 3.7 percent to 10.74. The gauge, known as the VIX, is near its lowest level since February 2007.

Seven out of the 10 S&P 500 main industries gained as health-care, raw-materials and consumer-staples companies rose the most, adding 0.3 percent. Utilities fell 1.2 percent for the worst performance.

Earnings Forecast

Constellation rose 2.9 percent to $90.91 for the biggest increase in the S&P 500. The producer and marketer of wines, beers and spirits increased its earnings estimates for the fiscal year after posting better-than-estimated profit in its first quarter. Rackspace rallied 7.4 percent to $36.25. The provider of cloud-computing services has been negotiating with a private- equity firm to borrow capital for a deal to go private, TechCrunch reported, citing an unidentified source. The deal could be announced as soon a this week, according to the news website. The San Antonio, Texas-based company hired Morgan Stanley last month to seek strategic options.

Bank of America advanced 2.4 percent to $15.98. Deutsche Bank upgraded its recommendation for the second-biggest U.S. lender to buy from hold.

Airlines Slump

Airlines slumped 3.3 percent, the most among 156 groups in the S&P 500. Delta Air lost 4.8 percent to $38.38 as its passenger unit revenue increased 4.5 percent last month from a year earlier, slowing from a growth rate of 7 percent in May.

GoPro Inc. lost 10 percent to $43.79, the first drop since its initial public offering last week. The maker of wearable cameras surged 20 percent to $48.80 yesterday, doubling its IPO price in a week. The company’s market value climbed to $6 billion, compared with $2.96 billion in its IPO.

Harley-Davidson Inc. retreated 2.9 percent to $68.31 after Raymond James Financial Inc. lowered its recommendation on the Milwaukee-based motorcycle maker to market perform, the equivalent of hold, from strong buy.

–With assistance from Jacob Barach in New York and Inyoung Hwang in London.

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