Broadgate: Market News 3/4
3 April 2013
Stocks rose on Tuesday, led by the healthcare sector after a government decision on payment rates, while factory orders data confirmed the economy is steadily improving.
The S&P 500 closed at another record high, though it fell short of breaking above its all-time intraday high of 1,576.09. The Dow also ended at another record high.
The U.S. government dropped plans to cut payments for private Medicare Advantage insurers and instead said it would allow a 3.3 percent raise. The news boosted shares of some health insurers, including Humana, which derives about two-thirds of its revenue from Medicare Advantage business.
Humana’s stock jumped 5.5 percent to $79.11 and was among the biggest percentage gainers on the S&P 500. UnitedHealth Group gained 4.7 percent to $61.74, while the S&P 500 healthcare sector index jumped 1.4 percent.
“They didn’t expect the result that they got. That will help with their bottom line,” said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.
Strengthening U.S. data has helped stocks rally since the start of the year. On Tuesday, U.S. data showed February factory orders rose 3 percent, slightly above expectations. That follows a weak reading on U.S. manufacturing on Monday that sparked a pullback in stocks.
The S&P 500 is now up 10.1 percent since the start of the year.
For the day, the Dow Jones industrial average was up 89.16 points, or 0.61 percent, at 14,662.01. The Standard & Poor’s 500 Index was up 8.08 points, or 0.52 percent, at 1,570.25. The Nasdaq Composite Index was up 15.69 points, or 0.48 percent, at 3,254.86.
The S&P 500 surpassed its 2007 closing high last Thursday, while the Dow first broke above its 2007 record on March 5.
Stocks pared gains late in the session, giving investors another reason to question the strength of the recent rally.
“The recent legs of this rally have lacked a bit of conviction,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia. “What’s been leading equity markets has been more defensive sectors.”
Healthcare sector stocks are still seen as cheap relative to the overall market. Humana, which has a market cap of about $11.9 billion, has a forward price-to-earnings ratio of 9.4, below the S&P 500 P/E average ratio of about 16.5. UnitedHealth has a P/E ratio of 10.6 and Cigna has a P/E ratio of 9.7.
“We do think that healthcare stocks are a nice combination of dividend yields, growth and low valuations and we are very constructive on the sector,” said Jim Russell, senior equity strategist for U.S. Bank Wealth Management in Cincinnati.
Other big gainers in the healthcare sector included shares of Cigna, up 2.9 percent at $64.75.
Most investors expect moves to be limited this week before Friday’s U.S. monthly payrolls report.
The March jobs report could give clues on how successful the Federal Reserve has been in lowering unemployment, one of the primary headwinds for the economy.
About 200,000 jobs were created last month, according to a Reuters poll, down from 236,000 in February. The unemployment rate is expected to come in at 7.7 percent, unchanged from the previous period, the poll showed.
In an effort to bring down the unemployment rate, the Fed has maintained an accommodative monetary policy, which has also benefited stocks.
Overseas, Cyprus concluded bailout talks. The deal, which still requires ratification, would mean the country receives a 10 billion euro loan and will have until 2018 to carry out measures to shore up its finances. The country’s finance minister resigned after concluding the deal.
Other gainers included Hertz Global Holdings shares, up 6.8 percent to $23.41, after the company forecast strong earnings and revenue through 2015 due to increasing global demand for car rentals and benefits from its recently completed acquisition of Dollar Thrifty.
Among decliners, Delta Airlines Inc shares were off 8.1 percent at $14.94. Delta’s unit revenue for March rose at a slower pace than in the prior two months.
Shares of Nasdaq OMX Group Inc plunged 12.8 percent to $27.91 after agreeing to buy a BGC Partners Inc trading platform. BGC shares were up 48.6 percent at $5.72.
Shares of Hewlett-Packard fell 5.2 percent to $22.10 after Goldman Sachs downgraded them to “sell.”
Volume was roughly 5.9 billion shares traded on the New York Stock Exchange, the Nasdaq and the NYSE MKT, below the 2012 average daily closing volume of about 6.45 billion.
Decliners outpaced advancers on the NYSE by about 15 to 14 and on the Nasdaq by about 13 to 10.
The yen inched lower versus the dollar on Wednesday while the euro edged lower in a market largely lacking conviction ahead of policy decisions by the Bank of Japan and European Central Bank on Thursday.
Yen bears are worried the BOJ, in its first policy review under new governor Haruhiko Kuroda, might not live up to expectations as markets are already positioned for aggressive stimulus measures.
The dollar firmed 0.1 percent to 93.50 yen, inching away from a one-month low of 92.57 yen set on Tuesday. The dollar was still some way off a 3-1/2 year high of 96.71 yen set last month.
“The bar is high for the BOJ to meet or exceed market expectations,” said Roy Teo, FX strategist for ABN AMRO Bank in Singapore.
Still, Kuroda will probably provide some forward guidance on the prospects for further stimulus measures, and that may help support the dollar against the yen, Teo said.
“I do see the 90 to 91 level as quite good support for dollar/yen,” he added.
Another possible short-term support for the dollar lies at about 92.11 yen, which is the top of the cloud on the daily Ichimoku chart, a popular technical analysis tool.
The BOJ is widely expected to ramp up its bond buying and extend the maturities of the bonds it purchases at the April 3-4 policy gathering.
Kuroda said on Tuesday that he wants to combine two different schemes that the central bank uses to purchase government debt, reinforcing expectations of bold monetary stimulus.
Combining the schemes would allow the BOJ to buy longer-dated bonds more easily and clarify how much it is expanding its balance sheet.
“Much of the BOJ dovishness is already priced in and traders remain wary of jumping into short yen positions at current levels,” said Vassili Serebriakov, strategist at BNP Paribas.
The euro slipped 0.1 percent versus the dollar to US$ 1.2804, staying within sight of a four-month low of US$ 1.2750 set last week.
The single currency has sagged back down after hitting a one-week high of US$ 1.2878 on Tuesday, weighed down by euro zone data showing the region was well into economic contraction territory last month.
Markit’s Euro zone Manufacturing PMI, released on Tuesday, showed that manufacturing across the euro zone fell deeper into decline in March.
This has prompted expectations European Central Bank President Mario Draghi would strike a more dovish tone at Thursday’s monetary policy meeting. The ECB is widely expected to keep interest rates unchanged at a record low of 0.75 percent at this week’s meeting.
The Bank of England is also likely to hold steady at its policy decision on Thursday but more action in the form of renewed government bond-buying is expected soon.
The market has been giving sterling a wide berth and piled pressure on the currency on Tuesday after data showed British manufacturing activity shrank for a second consecutive month in March.
The pound slipped 0.1 percent to US$ 1.5086. Against the New Zealand dollar, sterling last stood at NZ$ 1.7942, having hit an all-time low near NZ$ 1.7915 on Tuesday.
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